ANNUAL REPORT 2019 2019 Annual Report

ANNUAL REPORT 2019 2019 Annual report

Contents

Sovcomflot Group: Key Facts �� 4

2019 – Key events and achievements �� 6

Message from the Chairman of the Board of Directors �� 12 About the report Message from the President and Chief Executive Officer �� 14

Annual report of Sovcomflot (PAO Sovcomflot, the Company) for 2019 1. About Sovcomflot Group �� 16 includes the operating results of PAO Sovcomflot and its subsidiary 1.1. Company profile ��18 companies, referred to as Sovcomflot Group (SCF Group). It discloses the operational and financial results, and certain aspects of the ctivitya 1.2. Industry overview ��20 and figures in the area of sustainable development. 1.2.1. Situation in global markets ��20 The report is prepared in accordance with the requirements 1.2.2. Competitive position ��27 of the Regulation on Information Disclosure by Issuers of Issue-Grade Securities approved by order of the Central Bank of the Russian Federation 2. Strategy �� 28 dated 30 December 2014 No. 454-P, by taking into account a model structure of the joint-stock company’s annual report, shares of which are in federal 2.1. Development strategy of Sovcomflot Group ��30 ownership, approved by Resolution No. 1214 of the Russian Government 2.2. Long-Term Development Programme of Sovcomflot Group ��31 dated 31 December 2010, and by taking into account the recommendations 2.3. Strategic decision-making structure ��32 of the Corporate Governance Code of the Bank of Russia. 2.4. Key performance indicators The report is drawn up based on an analysis of the operational data of the Long-Term Development Programme ��33 and figures of the financial statements of PAO Sovcomflot for 2019 prepared in accordance with International Financial Reporting Standards. Perimeter 3. Operating results �� 36 of the information disclosed in the report coincides with the consolidation perimeter for purposes of the statements preparation under IFRS. The report 3.1. Production activities ��38 may contain discrepancies in calculation of shares, percentages, amounts due 3.1.1. Composition of the fleet ��38 to rounding of estimates. 3.1.2. Operation of the fleet ��39 The accuracy of information contained in this report is certified 3.1.3. Operating results ��42 by the Auditing Commission of the Company. 3.2. Investment activities ��45 On 7 April 2020 the 2019 annual report of PAO Sovcomflot was preliminarily 3.2.1. Dynamics of investments ��45 approved by the Company’s Board of Directors (Minutes No. 192 of 8 April 2020) and approved by the Annual General Meeting of Shareholders. 3.2.2. Implementation of investment projects - Key results ��47 3.2.3. Implementation of the shipbuilding programme ��52 3.3. Innovative activities and R&D ��53 Annual reports of PAO Sovcomflot for the previous years are available 3.3.1. Areas of innovative activities ��53 on the Company’s website in the Investors section 3.3.2. Assessment of the innovative development performance ��58 3.4. Financial results ��59 3.4.1. Balance sheet indicators ��59 3.4.2. Income statement indicators ��60 3.4.3. Liquidity indicators ��62 3.4.4. Credit rating of the Group ��62

PAO «Sovcomflot» 1 2019 Annual report

4. Corporate governance �� 64 Annexes �� 126

4.1. Corporate governance system ��66 1. Report on compliance with the principles and recommendations of the Bank of Russia Corporate Governance Code ��127 4.2. General Meeting of Shareholders ��71 2. Sovcomflot Group – Key risks ��144 4.3. Board of Directors of PAO Sovcomflot ��72 3. Participation of PAO Sovcomflot in commercial 4.3.1. Composition of the Board of Directors ��72 and non-profit organisations ��145 4.3.2 Activities of the Board of Directors in 2019 ��79 4. Major and interested-party transactions ��146 4.3.3 Activities of the Board of Directors committees in 2019 ��82 5. Information on litigations involving PAO Sovcomflot ��147 6. Information on the results of implementing orders 4.4. Chief Executive Officer and Executive Board of PAO Sovcomflot ��85 of the Russian President and the Russian Government ��148 4.5. Auditing Commission ��89 7. List of key internal regulations serving 4.6. Compensation system for members of management bodies ��91 as the basis for the compilation of this Annual Report ��154 4.6.1 Compensation of the Board of Directors members in 2019 ��91 8. Non-Core Asset Sale Programme ��155 4.6.2 Compensation of Executive Board members 9. General information about PAO Sovcomflot ��156 and the Chief Executive Officer in 2019 ��92 10. Glossary ��158

4.7. Stakeholder communications ��94

4.8. Risk management system and internal control ��95

4.8.1. Risk management system ��95

4.8.2. Internal control ��97

4.9. Internal and external audit ��98

4.9.1. Internal Audit ��98

4.9.2. External audit ��99

5. Share capital and profit distribution �� 100

5.1. Structure of the share capital ��102 5.2. Distribution of profit ��103 5.3. Dividend policy ��104

6. Sustainable development �� 106

6.1. Occupational health and safety ��108

6.1.1. Safety management system and service quality ��108

6.1.2. Key occupational safety indicators ��109

6.2. Human resources and social programmes ��110

6.2.1. Employment policy ��110 6.2.2. Professional development ��111 6.2.3. Personnel motivation ��113 6.3. Charity and sponsorship ��114 6.4. Environmental protection ��119 6.4.1. Environmental protection policy ��119 6.4.2. Atmospheric emissions ��120 6.4.3. Wastewater and waste management ��123 6.4.4. Energy consumption and efficiency ��124 6.4.5. Energy efficiency initiatives ��124

PAO «Sovcomflot» 3 2019 Annual report

SOVCOMFLOT GROUP: >7,700 83 KEY FACTS EMPLOYEES ICE-CLASS VESSELS

at sea and ashore SCF Group is the world’s largest owner and operator of ice-class vessels suited to harsh environments

Russia’s largest shipping company and one of the global leaders in marine transportation of hydrocarbons (crude oil and petroleum products, liquefied gas) and in transport servicing of oil and gas projects on the continental shelf, including offshore seismic exploration.

1 2 SCF Group is involved in servicing large oil and gas projects in Russia and abroad: Yamal LNG, Arctic LNG 2, Sakhalin-1, Sakhalin-2, Varandey, Prirazlomnoye, Novy Port, Tangguh (Indonesia). The SCF fleet includes the world’s first Aframax tankers specially designed to run on LNG. A Main charterers include major international and Russian oil&gas companies and traders, such as Gazprom, Sakhalin Energy, Exxon Neftegas, Royal Dutch Shell, Lukoil, Novatek, Vitol, ExxonMobil, Yamal Trade, Trafigura, Glencore, Gunvor, Total, Phillips 66, BP, Chevron, Sibur, Repsol, PetroChina, Equinor, Eni.

The Group has offices in Moscow, St. Petersburg, Novorossiysk, Murmansk, Vladivostok, Yuzhno-Sakhalinsk, Limassol, London, and Dubai. A

AS OF 31 DECEMBER 2019

147 12.87 4 10.8 MILLION TONNES NEW VESSELS VESSELS VESSELS total deadweight1 added in 2019 in operation average age of vessel SCF OFFICE SCF-SERVICED PROJECT PORT

1. Including the fleet of joint ventures (4 LNG carriers and 9 LR I product tankers). PAO «Sovcomflot» 5 2019 Annual report

2019 – Key events and achievements

January A liquefied natural gas (LNG) supply system was commissioned in the Kaliningrad Region, as part of Gazprom’s offshore gas receiving terminal and the floating storage and regasification unit (FSRU) named Marshal Vasilevskiy. Technical management for the FSRU is provided by SCF Group. March The crew of the tanker SCF Surgut rescued 12 people from the Pajarita yacht in distress in the Caribbean Sea.

Sovcomflot celebrated the tenth anniversary of the start of liquefied natural gas (LNG) shipments from the Sakhalin-2 project. In March February 2009, the Grand Aniva LNG carrier delivered the first Russian LNG cargo to consumers. Yevgeny Primakov, a multifunctional icebreaking platform supply vessel, The successful implementation of the project was named Support Vessel of the Year by Offshore Support Journal, enabled Russia to become a full fledged member an international trade publication. of the club of LNG exporting nations, which at that point included just 15 countries. The Aframax-sized tanker Korolev Prospect was added to the SCF Group fleet. The vessel continues the ‘Green Funnel’ series, is fuelled by LNG The Vernadsky Prospect tanker was put into and meets the highest international environmental requirements. service in continuation of the Green Aframax tanker series.

PAO «Sovcomflot» 7 2019 Annual report

April The Arctic shuttle tanker Mikhail Ulyanov loaded the milestone 10-millionth tonne of oil produced at the Prirazlomnaya platform in the Sea of Pechora. This shipment became the 150th in succession from the start of transport operations in April 2014.

Samuel Prospect, the sixth tanker in the revolutionary ‘Green Funnel’ series of LNG- fuelled Aframax tankers, joined the SCF fleet.

May The Gagarin Prospect tanker was named ‘Ship of the Year’ at the Marine Propulsion Awards 2019.

The 18th Annual Sovcomflot Group Business Partners Meeting was held in Moscow. It was attended by about 200 representatives from leading Russian and global oil and gas companies, Russian Federation ministries and agencies, investment, finance, insurance and law companies and expert organisations.

SCF Group entered into a US$297 million credit facility for up to 10 years with three international banks - ING Bank, KfW IPEX-Bank and Crédit Agricole Corporate and Investment Bank. The funds were intended to finance the construction of two LNG carriers, which will operate under long-term contracts with Royal Dutch Shell.

June SCF Group and VEB.RF Group signed a package of agreements to finance the construction of three new- generation product carries fuelled by LNG. The vessels are being built at the Zvezda Shipbuilding Complex (Primorsky Krai).

SCF Group and Gazprom Neft Marine Bunker entered into an agreement to cooperate on bunkering Sovcomflot Group ships with LNG fuel.

The Gagarin Prospect tanker won the Next Generation Ship Award 2019. The award giving ceremony was held in Oslo as part of the opening ceremony for Nor-Shipping 2019, the world’s largest shipping exhibition and conference.

PAO «Sovcomflot» 9 2019 Annual report

November Sovcomflot Group and VEB.RF Group entered into an agreement for lease financing of a pilot Artic LNG carrier for the Arctic LNG 2 project. At the same time, Sovcomflot Group and NOVATEK Group signed a long-time charter agreement for operation of the LNG carrier under the Arctic LNG 2 project. The vessel will be built at the Zvezda Shipbuilding Complex in Bolshoy Kamen, Primorsky Krai.

September Being guided by the resolutions of an extraordinary general meeting of shareholdersdated 23 September 2019 and under directives of the Russian Government, the PAO Sovcomflot Board of Directors elected Sergey Frank as its Chairman. Igor Tonkovidov was appointed as the Chief Executive Officer of PAO Sovcomflot.

Sovcomflot and NOVATEK signed an agreement to set up a joint venture SMART LNG. The company will be the owner and operator of a tanker fleet for year-round transportation of natural liquefied gas under the Arctic LNG 2 and other current and prospective projects of NOVATEK.

The SCF Group fleet was supplemented with the Arctic shuttle tanker of the Shturman Albanov series. In the run-up to the 200th anniversary of the discovery of Antarctica by a Russian expedition led by Bellingshausen and Lazarev, the new tanker was named after Mikhail Lazarev, an outstanding Russian pioneer. Mikhail Lazarev continues the series of shuttle tankers operating for Gazprom Neft’s Novy Port project.

The large-capacity tanker Korolev Prospect made a voyage via the Northern Sea Route using exclusively environmentally friendly LNG fuel along the whole route for the first time in the history of navigation. December Sovcomflot Group won the award for ‘Company of the Year’ at the 2019 Joint ventures of Sovcomflot Group and NYK Line entered into a US$176 Lloyd’s List Europe Awards. million credit facility for up to 8 years with a consortium of three international banks: Sumitomo Mitsui Banking Corporation, Société Générale The crew of Gennadiy Nevelskoy, a multifunctional icebreaking supply vessel, and Shinsei Bank. The raised funds were used to refinance two ice-class rescued three fishermen in distress in the Sea of Okhotsk. LNG tankers, Grand Aniva and Grand Elena, jointly owned and managed by Sovcomflot and NYK Line.

PAO «Sovcomflot» 11 2019 Annual report

Message from the Chairman of the Board of Directors

The Board was very pleased with the financial and operational results from the first year of Strategy 2025. In 2019, the Group achieved all its key performance targets, whilst substantially outperforming on several.

In 2019, SCF’s net profit climbed to USD 225.4 million and, in accordance with our dividend policy, this enabled a significant RUB 7.18 billion dividend payment to be distributed to our Shareholder.

In the reporting period, the Board remained committed to incorporating sustainable business practices across the Group. Strategy 2025 details our sustainability priorities, namely: ensuring the highest possible safety and quality standards of our services; reducing the Group’s environmental impact; remaining supportive and responsible towards communities and maritime clusters we operate in; supporting maritime education and research, and retaining and developing our human capital, which remains our most valuable asset.

We have made it our priority to reduce the emissions footprint of our operations and made significant progress during the year. All vessels delivered to SCF Group in 2019 comply with both existing and anticipated environmental regulations and requirements. Similarly, all future vessels added to our order book during the year are, without any exaggeration, the smartest and most technically advanced in their categories. In 2019, we became one of the first shipowners to support the Poseidon Principles, an initiative launched by leading international banks to promote environmentally responsible shipping. 2019 was the first year of implementation of our new strategy through to 2025 – Strategy 2025. This strategy is consistent with the successfully The Board of Directors would like to express its gratitude to all of SCF’s implemented Strategy 2005-2010 and Strategy 2011-2018. It retains partners and clients for their continued support and collaboration the focus on further aligning SCF Group’s business model with the servicing and for entrusting us with their valuable cargoes and service requests. of long-term industrial projects, while maintaining pre-eminence On behalf of the Board, I would like to thank our masters and crews Sergey Frank in our traditional segments of the conventional tanker market. To achieve Chairman across the whole of our fleet, and likewise, our shorebased personnel, this we will need to further strengthen our technological leadership of the Board of Directors for their continued dedication and excellent performance in 2019. and operational excellence. PAO Sovcomflot

Strategy 2025 continues our adherence both to our guiding principles of doing business in a responsible manner, for which SCF has gained a strong reputation within the global shipping and offshore industries, and to our spirit of innovators and explorers, which has lead us to introduce several game-changing vessels and trading routes over the recent years.

Strategy 2025 goes further by acknowledging some fundamental changes to the mechanics of the global economy, the constraints governing the development of the energy sector and how they may impact the economics of global shipping and last but not least, the environmental challenge to shipping itself and its environmental footprint for the future.

PAO «Sovcomflot» 13 2019 Annual report

Message from the President and Chief Executive Officer

finance agreements have been signed with VEB.RF Group, and time charters have been concluded with the project’s operator.

The prior experience of operating Christophe de Margerie, the world’s first icebreaking LNG carrier that serves the Yamal LNG project, led to the integration of various advanced engineering solutions into the design of new LNGCs for Arctic LNG-2, which will provide these new carriers with high icebreaking capabilities and manoeuvrability when operating in the challenging ice conditions of the Arctic.

We continued to renew our fleet during 2019, with an emphasis on improving its efficiency and introducing innovations, including those reducing the fleet’s environmental impact. 2019 marked the first year of successfully operating the pioneering ‘Green Funnel’ series of LNG-fuelled Aframax crude oil tankers, and the resulting data is very encouraging. It confirmed that the use of LNG fuel enables a significant reduction in emissions, with carbon dioxide (CO2) emissions reduced by 30 per cent, nitrogen oxides (NOx) emissions cut by 94 per cent, and both sulphur oxides (SOx) and particulate matter emissions eliminated altogether. Currently, SCF has six LNG-fuelled tankers in operation and a further five under construction.

Over the year, the global professional community recognised SCF’s accomplishments in developing and adopting advanced technologies and engineering solutions on numerous occasions. SCF was named ‘Company of the Year’ at the Lloyd’s List Europe Awards 2019, while Gagarin Prospect, the lead vessel in the ‘Green Funnel’ series, was named ‘Ship of the Year’ In 2019, SCF Group operated against the backdrop of a gradual recovery at the 2019 Marine Propulsion Awards and won the Nor-Shipping Next in conventional tanker freight rates, after nearly three years of depressed Generation Ship Award. tanker markets. Despite the market volatility remaining high, conventional tanker shipowners benefited from a positive trend in freight rates SCF Group is consistently introducing environmentally friendly LNG fuel over the year, something that was especially evident in the fourth quarter. in the Arctic shipping operations. In September-October 2019, three ‘Green Funnel’ LNG-fuelled Aframax tankers completed commercial voyages along In this context, SCF Group achieved steady growth in its key operating the Northern Sea Route. and financial metrics, many of which rose in 2019 close to their historic record levels. Time charter equivalent (TCE) revenues increased by 17.8 Overall, the positive results achieved in 2019 were only possible through per cent to over USD 1.27 billion, whilst EBITDA rose by 41.7 per cent the concerted efforts of all our employees: the masters and crews of SCF’s to reach USD 823 million and net profit exceeded USD 225 million. vessels, shipbrokers and technical managers, as well as other onshore units. Significantly, our conventional crude oil transportation operations increased On behalf of the Executive Board, I extend my gratitude to all SCF team their revenues. members for their work and dedication. We value the contribution of each and every one of you. In 2019, the Board of Directors approved SCF Group’s strategy for the period to 2025, which mandates the Group to focus its further development on maintaining business stability and the sustainability of our results. We will continue to pay special attention to expanding our participation in long-term industrial projects, primarily shipping liquefied gas and servicing offshore energy production, with a special emphasis on operations in challenging climatic and ice conditions.

Against this background, SCF Group continued to successfully develop its strategic partnership with NOVATEK. During the year, the two companies Igor Tonkovidov President established SMART LNG, a joint venture that will own and operate a fleet and Chief Executive Officer, of LNG carriers for the Arctic LNG-2 project. Five such LNGCs have been Chairman ordered at Zvezda Shipyard in Russia’s Far East, whilst associated lease of the Executive Board PAO Sovcomflot

PAO «Sovcomflot» 15 1. ABOUT Sovcomflot is Russia’s largest shipping SOVCOMFLOT company and one of the global leaders in the maritime GROUP transportation of hydrocarbons (crude oil and petroleum products, liquefied gas), as well as the servicing of oil and gas projects on the continental shelf, including offshore seismic exploration. Strategy Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report results governance distribution development About Group

1.1. Company profile

SCF’s own and chartered fleet includes 1471 vessels with a total deadweight MAIN CHARTERERS OF SCF GROUP’S VESSELS1 of 12,874 thousand tonnes and an average age of 10.8 years. 83 vessels have an ice class.

The structure of the SCF fleet includes five operating segments 2

Offshore services

Supply and servicing of offshore platforms, • 10 Aframax (and 2 under construction), 5 Panamax and 4 MR shuttle tankers management of terminals, shuttle • 10 multifunctional ice-breaking vessels transportation

Gas transportation Transportation of liquefied natural • 9 LNG tankers3 (and 84 under construction) and petroleum gas (LNG and LPG) • 4 LPG tankers

Crude oil transportation Transportation of crude oil • 2 VLCC, 15 Suezmax and 39 Aframax crude oil tankers (and 2 under construction)

Oil products transportation Transportation of oil products • 7 LR II, 95 LR I, 25 MR (and 3 under construction) and 4 Handysize product and chemical tankers

Other Offshore seismic exploration • 2 seismic research vessels and transportation of bulk cargoes • 2 Panamax bulkers

More detailed information can be found in section 3.1.1. of this Annual Report, Composition of the fleet, 3.2. Investment activities, and on the SCF Public Joint-Stock website in the List of vessels section. Company Sovcomflot is Russia’s largest Sovcomflot Group operates vessels in segments which attract the most shipping company, demand from leading Russian and international oil and gas companies.The as well as a global Group is involved in servicing large energy projects in Russia and beyond, leader in the maritime including Yamal LNG, Arctic LNG 2, Sakhalin-1, Sakhalin-2, Varandey, transportation Prirazlomnoye, Novy Port, Tangguh (Indonesia). of hydrocarbons and the servicing Our in-house engineering and a set of advanced technologies, especially of offshore oil related to shipments in extreme weather conditions, are unique and gas exploration for a shipping company, and enable the Group to satisfy the various and production. requirements of our customers and to provide them with a safe, reliable and efficient transport service.

Commercial units of Sovcomflot Group focus on work with major oil & gas and trading companies. The tonnage is chartered out on a competitive basis under the principles of equal conditions and opportunities for all clients.

1. Including the fleet of joint ventures (4 LNG carriers and 9 LR I product tankers). 1. By the share in time charter equivalent revenues. 2. The breakdown into segments is provided in accordance with the IFRS financial statements. 3. Including the fleet of joint ventures: 4 LNG carriers. 4. Including the vessels that were ordered by a VEB Leasing Group company, with one vessel to be transferred for operation to SCF Group and four to SMART LNG, a joint venture of PAO Sovcomflot and PAO NOVATEK after completion of construction. The shipbuilding contracts for the construction of vessels for SMART LNG concluded in 2019 entered into force after the end of the reporting period. 5. The fleet of joint ventures.

PAO «Sovcomflot» 19 Strategy Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report results governance distribution development About Group

1.2. Industry overview ClarkSea1 Index dynamics for the period from 5 January 1990 to 3 January 2020 (USD per day) 90000 1.2.1. SITUATION IN GLOBAL MARKETS 0000 0000 Transportation of crude Demand for tanker transportation is affected by a number of factors, including oil, petroleum products supply and demand for crude oil and oil products, the availability of refining 0000 and liquefied natural gas capacity and storage facilities, the economic situation in global and regional 0000 accounts for nearly one- markets, the distances over which oil and petroleum products are transported, third of global seaborne and competition from other modes of transport. 0000 Average for the speciﬁed period: freight, and its growth US$20,732 per day 0000 over the past five years Supply in the tanker market is also affected by a number of factors, including has been outpacing the pace and quantities of new ship deliveries, old tonnage disposal rate, 20000 that in other segments. conversion of existing fleet, and changes in industry regulation 10000 Yet, the international tanker market 0 is still characterised Oil market by a clear cyclicity Crude oil production in OPEC countries decreased from 33 million barrels and large fluctuations per day in November 2018 to less than 31 million barrels per day in February 1992 of freight rates due 2019 and remained at this level during 2019, negatively affecting the demand un un 2020 to changes in tonnage un 1990 un 1991 un 199 un 199 un 199 un 199 un 199 un 199 un 1999 un 2000 un 2001 un 2002 un 200 un 200 un 200 un 200 un 200 un 200 un 2009 un 2010 un 2011 un 2012 un 201 un 201 un 201 un 201 un 201 un 201 un 2019 for tanker transportation up to the fourth quarter. Key reasons for the decrease demand and supply. in crude oil production included Saudi Arabia’s policy of sharply reducing crude oil exports, even beyond the commitments under the OPEC+ deal, and the forced Given the positive trends in the fourth quarter, in 2019 the ClarkSea Index reduction of exports by Venezuela and Iran due to political and economic averaged US$22,168 per day, almost twice as much as in 2018 (US$11,216 per pressure. Brent prices rose since the beginning of 2019, averaging US$57.36 per day). The lowest value of the index was recorded in 1992 at US$8,983 per day. barrel in January and reaching US$67 per barrel by the end of February, but then remained at US$62-63 per barrel during the rest of the reporting period. The high market period continued until the end of February 2019. In March, freight rates for crude oil tankers declined significantly and remained at low 22,168 levels during 2Q and 3Q 2019. Despite an improvement in the fundamental Tanker market demand and supply balance, tanker markets saw a decline by the end of Q1, US$ PER DAY Excess of tanker tonnage supply over demand due, in particular, to an increase which was mainly attributable to a decrease in exports from Iran and Venezuela in speculative tanker orders amid a short-lived market rally in 2015, resulting from sanctions and, to a considerable extent, a sharp cut in exports the average ClarkSea in combination with the OPEC+ output cap, resulted in freight rates for crude by Saudi Arabia under the OPEC+ agreement. Index value in 2019 oil carriers reaching the lowest levels in the past 25 years not long before the start of the reporting period. The fourth quarter of 2018, however, saw some The drop in spot rates in March did not affect demand for time charter contracts signs of recovery in market conditions. Tanker markets grew, largely thanks for crude oil tankers and LR II ships owing to positive fundamental expectations to the decisions taken to revise the agreement limiting crude oil output and amid and uncertainty about the impact of new requirements for marine fuel the seasonal increase in demand for transportation of crude oil and petroleum under IMO 2020. Time-charter rates were progressively rising during 2Q and 3Q products, and by the beginning of 2019 the rates reached the level seen 2019. at the end of 2015. Expectations of a rise in tanker rates were realised at the end of 3Q and during 4Q 2019. The explosive growth in tanker rates was triggered by an attack on Saudi Arabia’s oil infrastructure in September 2019 and the sanctions imposed by the U.S. against one of the largest VLCC owners in October 2019. Also, during the year there was a significant increase in demand for crude oil transportation by large-capacity tankers due to a rise in U.S. oil exports.

As a result, tanker rates for some destinations reached record levels since the beginning of the century amid high short-term market volatility. In some cases, the rates for VLCC and Suezmaz carriers exceeded US$250,000 per day.

1. See the Glossary.

PAO «Sovcomflot» 21 Strategy Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report results governance distribution development About Group

A rise in rates was recorded virtually for all destinations of shipments by oil Weighted average one-year time charter rates, USD per day tankers and (to a lesser extent) by product tankers. Despite an increase Vessel size category 2019 20181 Difference, % in the demand for transportation of refined products, growth in rates in this segment during the year was constrained by the fundamentally excessive VLCC tankers 36,358 22,899 58.78 supply of tonnage. The switch to transportation of crude oil by some large- Suezmax tankers 26,649 17,486 52.40 capacity product carriers had a positive effect on the rate dynamics in petroleum Aframax tankers 22,091 14,925 48.01 products shipping markets during the second half of the year. Product carriers (dark petroleum products) 14,683 13,120 11.91 During the past period, tonnage supply growth rates in the tanker market Product carriers (light petroleum products) 13,425 11,572 16.01 declined significantly due to a decrease in the number of new vessels put into service against the background of the existing fleet’s obsolescence. Also, there Source: Clarksons was a decline in new ship ordering activity of shipowners, with the ratio between the new order portfolio and global fleet size being at a historical low. Dynamics of tanker time charter rates, USD per day As a result of a substantial market improvement in 4Q the weighted average spot TCE in some segments exceeded that for 2018 by more than 100 %. 000 Weighted average one-year time charter rates also increased significantly. 0000 Weighted average spot TCE, USD per day 000 Vessel size category 2019 2018 Difference, % 0000 VLCC tankers 41,364 15,561 165.82 2000 Suezmax tankers 31,560 16,466 91.67 Aframax tankers 26,225 16,175 62.13 20000 MR product carriers 13,740 8,750 57.03 1000 Handysize product tankers 14,560 6,734 116.22 10000

Source: Clarksons 000 0 Dynamics of spot tanker freight rates, USD per day

120000 Deс - 2013 ar 201 un 201 Sep 201 Deс - 2014 ar 201 un 201 Sep 201 Deс - 2015 ar 201 un 201 Sep 201 Deс - 2016 ar 201 un 201 Sep 201 Deс - 2017 ar 201 un 201 Sep 201 Deс - 2018 ar 2019 un 2019 Sep 2019 Deс - 2019

100000 Suemax Aramax

0000 Source: Clarksons

0000

0000 1. Clarksons Research Services data for 2018 as of 31 December 2019 were updated in comparison with similar data as of 31 December 2018.

20000

0 Deс - 2013 ar 201 un 201 Sep 201 Deс - 2014 ar 201 un 201 Sep 201 Deс - 2015 ar 201 un 201 Sep 201 Deс - 2016 ar 201 un 201 Sep 201 Deс - 2017 ar 201 un 201 Sep 201 Deс - 2018 ar 2019 un 2019 Sep 2019 Deс - 2019 Suemax Aramax

Source: Clarksons

PAO «Sovcomflot» 23 Strategy Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report results governance distribution development About Group

LNG shipping market New build and S&P market

2019 saw significant fluctuations in both short-term and long–term markets The demand in the second-hand vessel market in 2019 was 12.80 % higher than for LNG transportation. in 2018, with 379 deals (total deadweight: 34,127 thousand tonnes, total value: US$5,952 million) against 336 deals (total deadweight: 32,015 thousand tonnes, The beginning of the year was marked by a fall in the spot market from a historical total value: US$4,995 million) in 2018. A significant factor in the initial decline All SCF Group vessels high of about US$220 per day for a modern vessel achieved in 4Q 2018 to US$50 in buyers’ interest in tonnage, apart from low freight rates, was the uncertainty are employed or being per day and less, depending on the vessel type, by the beginning of 2Q 2019. regarding the impact of the approaching entry into force of the 0.5 % built for long-term LNG The lowest rates in April 2019 reached US$20,000 for a vessel with a steam cap on sulphur content in bunker fuel from 2020 and the need to factor transportation contracts turbine and US$35,000 for a trifuel vessel. By the beginning of the fourth quarter in investments in ballast water treatment systems that must necessarily be for major international spot rates showed a strong seasonal growth, from US$100,000-140,000 per installed on vessels during dock repairs after September 2019. Due to the same charterers and projects. day for prior generation vessels to US$150,000 for modern vessels. This spike, factors prices for second-hand tonnage dropped significantly in 2019, however, was quickly replaced by a fall, failing to reach the previous year’s and this in turn attracted buyers to the market. record levels. The main reasons for the market fall probably include a significant decline in demand for LNG due to unrealized fore-casts of temperature drops During the first three quarters of 2019 prices in the tanker sale and purchase in the winder period, a reduction in arbitrage supplies due to a sharp fall in gas market declined by 20-25 %, but between October and December 2019 prices prices, commissioning of new vessels, and cargo programmes being covered for crude oil tankers rose significantly, having gained 20 % compared to the end by medium-term transportation contracts in advance. of 2018. Following growth in 2017, bulker prices stagnated in 2018 and during 2019. The beginning of 2019 was also marked by increased activity of charterers in concluding long-term charters for newbuilds to cover long-term contracts Activity in the second-hand tanker market for gas supply with the commissioning of new LNG facilities around the world and to replace prior generation vessels in the fleet. By mid-year charter rates Indicator 2019 20181 Difference, % for seven or more years peaked at US$71,000 for a newly built standard gas Number of ships sold 379 336 12.80 carrier. Amid increased activity from charterers orders for new gas carriers Total deadweight of sold ships ('000 tonnes) 34,127 32,015 6.60 from both well-established shipowners and newcomers in the gas segment increased significantly. The number of speculative orders without pre-agreed Total value of sales (USD million) 5,952 4,995 19.16 transportation contracts rose considerably. In the second half of the year, the demand for long-term contracts from potential charterers declined substan- Source: Clarksons tially due to the current needs being sufficiently covered and investment decisions on new long-term projects being postponed to a later time. As a result, rates for modern ship sizes under long-term contracts concluded by the end of 2019 dropped to US$60-62. 1. Clarksons Research Services data for 2018 as of 31 December 2019 were updated in comparison with similar data as of 31 December 2018. The increase in market volatility in 2019 similarly to 2018, the rise in the number of players, amount of free capacity and additional volumes indicate a further reorientation of conventional gas transportation to the medium and long-term market model. All SCF Group vessels are employed or being built for long-term LNG transportation contracts for major international charterers and projects.

PAO «Sovcomflot» 25 Strategy Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report results governance distribution development About Group

During 2019, the bulk of the demand in the shipbuilding market was for LNG 1.2.2. COMPETITIVE POSITION carriers. This was associated with the development of new large liquefied gas production projects and high freight rates (speculative demand). Main competitors of Sovcomflot Group in core business areas are Besides, there was heightened demand for large-capacity container carriers According and conventional tankers. The demand for bulkers stagnated. Overall, the total number of orders for new ships in 2019 decreased compared • Fredriksen Group, Cyprus; to Clarksons, to 2018. • Teekay Corporation, Canada; at the end • Euronav N.V., Belgium; • Knutsen OAS Shipping, Norway; of the reporting In 1H 2019, prices for newbuilds were rising at Korean yards, while • China COSCO Shipping, China; shipbuilding contract prices in China and Japan were stable. The stagnation period Sovcomflot • Mitsui O.S.K. Lines, Japan; of prices in China since the beginning of 2019 was due to a reduction Group held • Nordic American Tankers (NATS), Norway; in government support for fleet renewal programmes of local shipowners. • Marmaras Navigation, Greece; the following The price disparity between South Korean and Chinese yards increased • Dynacom Tankers, Greece; by mid-year, and a sig-nificant number of customers for ships (excluding positions in global • Ocean Tankers (Pte) Ltd, Singapore; LNG carriers) gave preference to Chinese yards. The demand for services shipowner rankings: • Scorpio Group, Monaco; of Korean shipbuilders declined, causing a small price correction. The start • Torm A/S, Denmark; of the merger between Korea’s Hyundai Heavy Industries and Daewoo • Minerva Marine, Greece; Shipbuilding & Marine Engineering, as well as between China’s largest state- RANK • BW Group, Bermuda; 1 owned shipbuilding companies CSSC and CSIC, did not lead to an increase • Tsakos Group, Greece; Arctic shuttle tanker in shipbuilding contract prices as at the end of 2019. • MISC, Malaysia. fleet

Dynamics of the number of new ship orders The global tanker shipping market is considerably fragmented and is characterised by high com-petition and the absence of serious barriers RANK Type of vessel 2019 20181 Difference, % 1 for entry. The SCF Group’s share of the freight market does not exceed Ice-class tanker fleet Crude oil and product tankers 184 207 -11.11 1 %. Any change in this indicator over the past three years is considered Chemical tankers 35 62 -43.55 immaterial (less than 0.01 %) due the continued presence of a significant number of fleet owners and operators, estimated in total at about 3,200 LNG carriers 57 49 16.33 RANK (including approximately 200 companies with a fleet of 10 or more tankers). 1 LNG carriers 61 77 -20.78 Aframax tanker fleet Total 337 395 -14.68 1 RANK Multifunctional Source: Clarksons icebreaking vessel fleet

1. Clarksons Research Services data for 2018 as of 31 December 2019 were updated in comparison with similar data as of 31 December 2018. 3 RANK Shuttle tanker fleet

5 RANK Size of tanker fleet

5 RANK Ice-class LNG tanker fleet

8 RANK Product tanker fleet

PAO «Sovcomflot» 27 2. STRATEGY Sovcomflot’s development strategy is to further expand the share of industrial business while focusing on the most profitable conventional business segments, based on implementation of advanced technologies, including those related to environmental protection, and strengthening of cooperation with key charterers. About Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group results governance distribution development Strategy

2.1. Development strategy 2.2. Long-Term Development of Sovcomflot Group Programme of Sovcomflot

In May 2019 the PAO Sovcomflot Board of Directors approved Group the Group Strategy for 2019-20251. The document reflects the next stage of the strategic planning cycle of PAO Sovcomflot and takes into account the results of implementation of the Group Strategy in effect from 2011 The Long-Term Development Programme (LDP) of PAO Sovcomflot to 20182, as well as changes in the external business environment and market intended for the period 2014 – 2020 was approved by the company’s Board dynamics. of Directors in November 20141 after coordination with relevant agencies and review at a meeting held with the participation of representatives The goal of Strategy 2025 is to maintain the company’s global leadership of the Government of the Russian Federation. The document was designed and ensure its sustainable growth by further expanding the industrial to refine the company’s development strategy in effect at the time the LDP portfolio with a focus on major Russian oil and gas projects. was adopted, and therefore the basic goals and objectives of the LDP correspond to those of the strategy. Currently work is underway to update Under the base case scenario underlying the strategy, by 2025 the share the PAO Sovcomflot LDP in accordance with Strategy 2025 approved in 2019. of the fleet serving industrial projects under long-term charter contracts may reach 40-50%, with revenues from these vessels accounting for up to one- Main activities to implement the company’s LDP in the reporting year: third of the company’s total revenue. • commissioning of new vessels (see section 3.2.3. Implementation Strategy 2025 provides for the following main directions of the Group’s of the shipbuilding programme); development: • repair and modernisation of vessels to comply with international environmental protection standards. - Maintaining the focus on energy shipping (crude oil, petroleum products and liquefied natural gas) and servicing of offshore hydrocarbon production; The main quantitative targets established by the LDP were formulated in a set of financial and industryspecific key performance indicators (KPIs), with the targets approved for each of them for the effective term - Further expanding the share of industrial business while focusing of the programme. on the most profitable conventional business segments; The results of implementation of the Sovcomflot Group LDP are subject - Strengthening leadership in a number of key global market segments to independent review. The opinion and main conclusions regarding with an emphasis on serving major national projects in difficult implementation of the LDP must be disclosed in the annual report2. climatic and ice conditions, as well transportation of lique-fied gas under international projects of leading oil&gas companies. LDP 2019 results were reviewed by KPMG. The report containing a positive opinion was received on 26 March 2020. According to it, the Report Strategy 2025 also sets forth the Sovcomflot Group’s priorities in sustainable on the implementation of the updated LDP is prepared, in all material development: ensuring navigation safety, reducing adverse environmental aspects, in accordance with the applicable legal requirements, standards, impacts, implementing innovative technical and technological solutions, regulatory methodological guidelines and recommendations and internal and continuous investment in human capital. documents of the Company.

1. Minutes of the Board of Directors No. 182 dated 27 May 2019. 2. The Group Strategy up to 2017 was approved by the Board of Directors in September 2011 (Minutes of the Board of Directors No. 113 dated 12 September 2011). The strategy parameters were updated in 2013 with the planning horizon extended to 2018 (Minutes of the Board of Directors No. 127 dated 20 March 2013). 1. Minutes of the Board of Directors No. 139 dated 24 November 2014. 2. Minutes of the Board of Directors No. 144 dated 19 May 2015.

PAO «Sovcomflot» 31 About Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group results governance distribution development Strategy

2.3. Strategic decision- 2.4. Key performance making structure indicators of the Long-Term

Organisational and strategic decision-making structure is shown in the figure below. Development Programme

The table below shows the attainment of targets set by the PAO Sovcomflot Organisational and strategic decision-making structure LDP for 2019 broken down by approved KPIs.

Approval of strategic decisions and 1 Board of Directors Attainment of KPI targets set by the LDP in 2019 control over their implementation № KPI Target The lowest Actual value Comments value (basic sce scenario nario) Preliminary consideration of strategic 1 Net revenue (time charter equivalent ≥1,560 ≥1,230 1,337.51 The main reasons Strategy Committee income), USD million for the deviation2: issues, preparation of recommendations • Significant changes under the Board of Directors 2 Profit/loss, USD million ≥350 ≥130 225.38 in global geopolitics for the Board of Directors and in the macroeconomic 3 EBITDA margin, % ≥65 % ≥64 % 68.39 % and industrial 4 EBITDA, USD million (for reference) ≥1 020 ≥790 914.77 environment that have taken place Preliminary consideration 5 Total dividends (index of dynamics ≥100 % 100 % 208.92 % since the approval of dividend payments vs. average level of the current version Executive Board of strategic plans and reports during the past three years), % of LDP in 2014 and have affected the prospects on strategy (LDP) implementation 6 Return on Invested Capital (ROIC), % ≥6.6 % ≥5.3 % 6.11 % for implementing the projects embedded 7 Return on Equity (ROE), % ≥7.3 % ≥4.1 % 6.73 % in the LDP; • Unfavourable freight Drafting strategic concepts and plans, market conditions. Strategy Planning monitoring strategy (LDP) implementation, 8 Net Debt / EBITDA ≤8 ≤8 3.58 Attained and Development Department 9 Utilisation efficiency of fixed assets ≥95 % ≥95 % 96.82 % Attained preparing respective reports (fleet), % 10 Implementation of the innovative ≥100 % ≥100 % 105.57 % Attained development programme, %

Key strategy decisions are made at the Board of Directors level (approval of the strategy (LDP), approval of target KPIs, and controlling their implementation) with preliminary consideration by the Strategy Committee under the Board of Directors. The Strategic Planning 1. and Development Directorate is monitoring the implementation of Group Except for items 5, 9 and 10, target and actual KPI values are calculated using proportional consolidation of the results of joint venture Strategy, preparing relevant reports and executive summaries. operations according to the methodology approved by the Board of Directors on 10 December 2014 (Minutes of the Board of Directors No. 140 dated 12 December 2014). 2. Relevant to items 1, 2, 4, 6, 7

PAO «Sovcomflot» 33 About Operating Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group results governance distribution development Strategy

The table below shows the attainment of targets set by the PAO Sovcomflot LDP for 2019 com-pared to the Attainment of targets set by the PAO Sovcomflot LDP broken down by approved KPIs on average previous year. for 2015-20191

No. KPI Actual for 2018 Actual for 2019 No. KPI Target value (basic The lowest Actual Comments scenario) scenario 1 Net revenue (time charter equivalent income), USD million 1,138.05 1,337.51 1 Net revenue (time charter ≥1,401.78 ≥1,201.78 1,225.63 Actual between the basic 2 Profit/loss, USD million - 45.56 225.38 equivalent income), USD million and lowest sce-nario 3 EBITDA margin, % 54.40 % 68.39 % 2 Net profit, USD million ≥262.74 ≥92.74 125.63 4 EBITDA, USD million (for reference) 619.10 914.77 3 EBITDA margin, % ≥61.86 % ≥60.06 % 60.29 % Actual is comparable to the lowest scenario (the 5 Total dividends (index of dynamics of dividend payments 46.42 % 208.92 % margin is less than 2 %) vs. average level during the past three years), % 4 EBITDA, USD million ≥876.16 ≥722.16 745.89 Actual between the basic 6 Return on Invested Capital (ROIC), % 2.75 % 6.11 % (for reference) and lowest sce-nario 7 Return on Equity (ROE), % - 1.34 % 6.73 % 5 Total dividends (index of dynamics ≥100.00 % ≥100.00 % 135.03 % Attained 8 Net Debt / EBITDA 5.48 3.58 of dividend payments vs. average level during the past three years), % 9 Utilisation efficiency of fixed assets (fleet), % 97.85 % 96.82 % 6 Return on Invested Capital (ROIC), % ≥6.03 % ≥4.49 % 4.83 % Actual between the basic 10 Implementation of the innovative development 114.07 % 105.57 % and lowest sce-nario programme, % 7 Return on Equity (ROE), % ≥6.16 % ≥2.64 % 3.88 % 8 Net Debt / EBITDA ≤8.00 ≤8.00 4.54 Attained 9 Utilisation efficiency of fixed assets ≥95.00 % ≥95.00 % 97.36 % Attained (fleet), % 10 Implementation of the innovative ≥100.00 % ≥100.00 % 113.80 % Attained development programme, %

1. Except for items 5, 9 and 10, target and actual KPI values are calculated using proportional consolidation of the results of joint venture operations according to the methodology approved by the Board of Directors on 10 Decem-ber 2014 (Minutes of the Board of Directors No. 140 dated 12 December 2014).

PAO «Sovcomflot» 35 3. OPERATING The operational results achieved in 2019 attest RESULTS to the advantages of the Company’s current business model, which provides for faster growth and consistent development in market segments with a high value added, such as the servicing of offshore projects and liquefied gas transportation, while maintaining leadership positions in individual conventional transportation segments. Participation in large oil and gas projects ensures stable revenue for Sovcomflot Group even in the situation of high market volatility. About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Age characteristic of the Group’s fleet as of 31 December 2019

3.1. Production activities Vessels by type Average age in years Crude oil tankers 13.7 Product tankers 11.7 3.1.1. COMPOSITION OF THE FLEET Shuttle tankers 10.1 As of 31 December 2019, the Group’s fleet included 147 vessels with a total LNG and LPG carriers 8.4 deadweight of 12,874 thousand tonnes. Bulk carriers 7.0 Multifunctional icebreaking vessels 7.9 Research vessels and chartered vessels 8.1 1 Composition of the Sovcomflot Group fleet SCF Group fleet 10.8 Vessels by type Number of vessels Total deadweight, ‘000 tonnes

31.12.2019 31.12.2018 31.12.2017 31.12.2019 31.12.2018 31.12.2017 3.1.2. OPERATION OF THE FLEET Oil tankers 56 53 59 7,424 7,006 7,653

Product tankers 45 2 48 49 2,814 3,071 3,120 The system covers all key regions for Sovcomflot. The head office is located Technical operation in Dubai (UAE) and provides the management of foreign-flagged vessels. of SCF Group’s Shuttle tankers 19 16 16 1,552 1,301 1,301 The division in St. Petersburg is responsible for the management of Russian- own and chartered LNG and LPG carriers 13 13 13 887 870 870 flagged vessels. fleet is carried out Bulk carriers 2 2 2 149 150 150 by companies integrated Main functions of the companies belonging to the SCF Management Services into a single system Multifunctional icebreaking vessels 10 10 9 42 38 35 system: organising fleet operations, controlling the technical condition under the umbrella Seismic exploration vessels, chartered vessels 2 2 2 6 7 7 of ships, repairs and modernisation, equipment service support as well brand SCF Management Total 147 144 150 12,874 3 12,443 13,136 as engineering support for new projects, supervision of ship construction Services. and crewing services. Companies operating under the SCF Management Services brand also provide technical management services for ships of third- For more information about the fleet, broken down by operating segments, party owners. see section 1.1. of this Annual Report, Company profile. Detailed information about the vessels and their technical characteristics is available on SCF The SCF fleet operates in accordance with the Integrated Safety Group’s website in the List of vessels section. Management System (the ISMS) in effect at Sovcomflot Group. 4 In 2019 the Company continued to add new vessels to its fleet in accordance SCF Group manages the operation of the fleet based on the provisions with the adopted strategy and long-term development programme aimed of the Technical Policy. This policy is a set of measures and actions that NEW VESSELS at promoting growth and renewal of the fleet as well as its technological enable the Group to achieve operational advantages in the maritime

enhancement and improvements in energy efficiency. During the year transportation and service market sectors. 356.3 were added to the SCF the SCF Group fleet was augmented by 4 vessels delivered by shipyards US$ MILLION fleet in 2019 under previously concluded shipbuilding contracts (for more details see In accordance with the ISMS, Sovcomflot Group strives to optimise the system of providing vessels with the required financial and material section 3.2.3. of this Annual Report, Implementation of the shipbuilding the amount of vessel’s programme). resources to maintain them in good working order, and also applies advanced methods to monitor and analyse the technical condition of each vessel running costs in 2019, which is 4.1 % below The Long-Term Development Programme of PAO Sovcomflot provides and its equipment. for timely disposal of older vessels, as dictated by market conditions the approved and prescribed by conventions, registries, and other national 2019 budget and international requirements (those of the International Maritime Organisation, classification societies, and charterers). In 2019 Sovcomflot Group sold one MR product tanker aged above 15 years in the second-hand 10.8 vessel market. YEARS Thus, in 2019 the number of SCF Group vessels increased by 2.1 %. The total deadweight of the fleet increased by 431,000 tonnes or by 3.5 %. the average age of the Group’s fleet The average age of the Group’s fleet at the end of 2019 was 10.8 years, at the end of 2019 which is 18 % less than the average for leading tanker companies (according to Clarksons).

1. Including the fleet of joint ventures: 9 LR I product tankers and 4 LNG carriers. 2. Taking into account the transfer of Zaliv Baikal and Zaliv Vostok from the product tanker category to the shuttle tanker category. 3. Data for 2019 as of 31 December 2019 were updated in comparison with similar data as of 31 December 2018.

PAO «Sovcomflot» 39 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Dynamics of actual operating expenses for 2017-2019 (‘000 USD) The Technical Policy also prescribes the following actions to ensure the high quality of maintenance and repair work on vessels and their equipment: • Competitive selection of the most effective and qualified shipyards. 00000 • Using certified spare parts from original manufacturers when replacing 2 219 worn-out or faulty components of equipment. 0000 • Inspection of ships by classification societies, which ensures a high degree of supervision over the technical condition of vessels. 00000 • Implementation of a modernisation programme for vessels and shipboard equipment to comply with the requirements of flag administrations 20000 and international conventions, and improve ship merchantability. 200000

10000 Maintenance and repair of vessels, 2017-2019

100000 Indicator 2019 2018 2017 Dry dock repairs (number of vessels) 32 24 38 0000 In-water inspections (number of vessels) 15 30 20 0 Actual expenses for dry docking and repair of vessels (‘000 USD) 64.129 51.519 64.593 201 201 2019

In 2019 32 vessels were dry docked and repaired (vs. 24 vessels a year earlier). One of the goals of SCF Group under the Technical Policy Structure of operating expenses in 2019, % is to increase the interdocking period. In 2019 the intermediate survey for 15 vessels was carried out afloat - without dry-docking. 3�2 2�8 5�4 During the reporting period there were seven operational accidents, which resulted in damage to hull structures and vessel equipment, and required the decommissioning of vessels for repairs. SCF Group works proactively Cre upeep to reduce the number of accidents, and performs detailed analyses of them to prevent any repeats of incidents. echnc operton

Insurnce

56�6 ubes

erhes 32�1

Within the structure of operating expenses the majority are attributable to crew upkeep (56.6 %), while technical operation and modernisation account for 32.1 %, insurance for 5.4 %, lubes for 3.2 %, and other operating expenses for 2.8 %.

The SCF Group’s Technical Policy stipulates: Under the ISMS • A five-year classification survey period in docks that facilitates optimising the Group carries out maintenance and repair work; regular maintenance • A scheduled preventive maintenance plan for each vessel, approved and repairs of vessels, in accordance with the class of vessel. which is an essential • Monitoring the technical condition of individual types of vessels precondition for their safe and critical equipment to make sure that they comply with PAO and reliable operation. Sovcomflot requirements. • Maintaining the external appearance of each ship at a high level.

PAO «Sovcomflot» 41 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

3.1.3. OPERATING RESULTS Dynamics of Net earnings from vessels’ trading of the Group, 2015-2019 (USD million), versus the ClarkSea Index1 values (USD per day) Overall results for Sovcomflot Group 1000 000 Key operating performance indicators improved in 2019 compared to 2018, 9092 despite the high volatility in conventional tanker markets. The main reasons 1 265.5 for that were both the positive state of the freight market and measures 91 US$ MILLION taken to increase fleet performance, including renewal and modernisation 00 0000 9 of the fleet, a balanced freight policy, which ensures the effective use 10 TCE revenue for 2019 of the fleet in different phases of the tanker market, and cooperation (up 17.8 % from 2018) with high-profile customers. 00 2000 221 Time charter equivalent (TCE) revenue in 2019 amounted to US$1,265.5 million under IFRS against US$1,074.7 million in 2018. The Net earnings 191 from vessels’ trading of the Group also increased (by 30.4 %), to US$909.2 00 20000 million (vs. US$697.5 million in 2018). 50.5 % Sovcomflot Group cooperates with both foreign and Russian customers. 200 1000 In the reporting year the Group continued to meet Russian foreign trade 11 1121 the share of revenues requirements: its vessels participated in transportation of oil and petroleum products from different Russian ports, including Novorossiysk, Murmansk, from the servicing 0 10000 of offshore oil Primorsk, Ust-Luga, Prigorodnoye, and others. In addition, the Group’s 201 201 201 201 2019 and gas production vessels were used as floating storage units to facilitate the transhipment of export oil and petroleum products from river tanker vessels to sea by SCF vessels SCF Group's TCE revenues, 2015-2019 (USD million) ClarkSea Index values (USD per day) tankers. and maritime transportation of gas In 2019 the Group carried 62.4 million tonnes of Russian export and transit in total TCE revenue (vs. cargo exported through Russia, which is 15.6 % more than in 2018. Fleet performance indicators by lines of business 57.2 % in 2018) SCF Group’s key operating performance indicators by main operating segments exhibited positive dynamics in 2019 both in conventional Dynamics of SCF Group’s TCE revenues, 2015-2019 (USD million), versus the ClarkSea Index1 values and industrial segments. (USD per day) Dynamics of TCE revenue by operating segments, 2017- 2019 (USD million)2

100 000 1201 12 500 1122 1200 10 0000 1 100 10 921 400 0

900 2000 210 221 300 29

00 191 20000 1 200 112 1 10 10 12 00 1000 11 1121 100 0 22 0 10000 201 201 201 201 2019 0 O shore Liqueed gas Crude oil Oil products Others SCF Group's TCE revenues, 2015-2019 (USD million) ClarkSea Index values (USD per day)

201 201 2019

1. 1. See the Glossary. See the Glossary. 2. The breakdown into segments is provided in accordance with the IFRS financial statements.

PAO «Sovcomflot» 43 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Dynamics of the Net earnings from vessels’ trading by operating segments, 2017-2019 (USD million)1 3.2. Investment activities

400 0 91 350 3.2.1. DYNAMICS OF INVESTMENTS 010 300 2 With due regard for SCF Group’s strategic priorities, the Investment The investment activities Programme chiefly focuses on the implementation of high-yield industrial of Sovcomflot Group 250 projects in the field of liquefied gas transportation and the servicing are performed as part of offshore hydrocarbon fields. In 2019 most investments were of the Long-Term Devel- 200 directed to these segments. Investments were also made in the repair opment Programme. 110 11 10 12 and modernisation of the existing fleet of the Group. Every specific 10 150 project is developed and evaluated according 9 to the Company’s 100 Dynamics of SCF Group investments, 2017-2019, USD million1 10 internal regulations. 0 1 00 50 10 19 0 00 O shore Liqueed gas Crude oil Oil products Others

00 9 201 201 2019 20

00 The commissioning of new tonnage and the consistent expansion of participation of the Company’s fleet in the maritime transportation 200 of hydrocarbons for large industrial oil&gas projects had a positive impact on the Company’s results. 100 The increase in TCE revenues and Net earnings from vessels’ trading in the segment of crude oil and petroleum products transportation was due to the positive dynamics of freight rates in all segments of the conventional 0 tanker shipping market. 201 201 2019

The increase in TCE revenues and Net earnings from vessels’ trading in the offshore services segment was driven by additions to the division’s In 2019 investment projects financing amounted to US$352 million, which fleet. is 7.2 % less than in 2018.

The increase in TCE revenues for the reporting period in the segment of liquefied gas transportation occurred mainly due to the improvement of the LPG carriers SCF Tomsk and SCF Tobolsk operating results (the vessels 1. These are the costs of vessel construction in progress as reported in the cash flow statement in the consolidated financial statements of PAO commenced one-year time charters). Sovcomflot prepared under IFRS.

In the «Others» segment, which in 2019 included two bulkers and two seismic research vessels, TCE revenues increased by 1.8 times compared to 2018, resulting in a profit from vessels’ trading versus a loss in 2018.

1. The breakdown into segments is provided in accordance with the IFRS financial statements.

PAO «Sovcomflot» 45 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Investment projects of Sovcomflot Group in 2019 3.2.2. IMPLEMENTATION OF INVESTMENT PROJECTS - KEY RESULTS Client / project Target Number of vessels Implementation stage (as of 31 December 2019) PAO NOVATEK Construction of LNG-fuelled MR tankers 3 The vessels are under construction1 Dual-fuel Aframax and MR tankers Exxon Neftegas Limited / Construction of Aframax shuttle tankers 2 The vessels are under construction Sakhalin-1 In 2019 the Group put into operation three LNG-fuelled Aframax crude oil PAO NK Rosneft Construction of dual-fuel Aframax tankers 2 The vessels are under construction2 tankers - Gagarin Prospect, Lomonosov Prospect, and Mendeleev Prospect. PAO NOVATEK / Arctic LNG 2 Construction of Yamalmax Arctic LNG carriers 5 The vessels are under construction3 The vessels are part of a series of six ‘Green Funnel’ tankers specially designed to use LNG as the primary fuel. The first three vessels of the series Shell Construction of Atlanticmax LNG carriers 2 The vessels are under construction were put into operation in 2018. Total Construction of an Atlanticmax LNG carrier 1 The vessel is under construction4 Shell5 Construction of dual-fuel Aframax tankers 2+4 The vessels were put into operation SCF’s ‘Green Funnel’ tanker series has set a new standard of environmental in 2018-2019 sustainability in the maritime shipping industry. The tankers’ main engines, Gazprom Neft / Novy Port Construction of an MR Arctic shuttle tanker 1 The vessel has been put into service auxiliary engines, and boilers are dual-fuel (using conventional ship fuel and LNG). In addition, these vessels are fitted with Selective Cata- lytic Reduction (SCR) technology, which enables compliance with Tier III regulations governing NOx emissions (Annex VI to the International Convention for the Prevention of Pollution from Ships) even when running 1. The vessels were ordered by a VEB Leasing Group company and are to be subsequently transferred to SCF Group for operation on conventional fuel. SCF’s ‘Green Funnel’ tankers with a deadweight after completion of construction. of 114,000 tonnes each have a hull with a high ice class (1A). In February 2. The vessels were ordered by a VEB Leasing Group company and are to be subsequently transferred to SCF Group for operation 2018 Sovcomflot Group and Shell entered into long-term charter agreements after completion of construction. 3. The vessels were ordered by a VEB Leasing Group company, with one vessel to be transferred for operation to SCF Group and four for two vessels of the series. Shell also provides LNG supply. to SMART LNG, a joint venture of PAO Sovcomflot and PAO NOVATEK after completion of construction. The shipbuilding contracts for the construction of vessels for SMART LNG concluded in 2019 entered into force after the end of the reporting period. Serial construction of ‘Green Funnel’ tankers has started at Russian 4. The LNG carrier SCF La Perouse was accepted for operation on 10 February 2020. shipbuilding facilities, at the Zvezda Shipbuilding Complex (Primorsky Krai), 5. Sovcomflot Group and Shell entered into long-time charter contracts for two vessels of the series in 2018. The other four vessels as part of cooperation between Rosneft and Sovcomflot. In September of the series (three of which joined the fleet in 2019) are operating in the open market. 2018, an order was placed for the construction of two Aframax crude oil tankers using LNG as the primary fuel, to be subsequently charted to Rosneft under long-term time charter parties. The first vessel is scheduled to be commissioned in 2022.

In addition, an order for the construction of three MR product tankers using LNG as the primary fuel was placed with the Zvezda Shipbuilding Complex in 2019. The tankers are designed to transport petroleum products and gas condensate and have been chartered to NOVATEK under long-term time charters.

PAO «Sovcomflot» 47 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

A new Arctic shuttle tanker of the Shturman Albanov series Fifth-generation Atlanticmax LNG carriers for the Novy Port project The construction of three fifth-generation Atlanticmax LNG carriers In September 2019 Sovcomflot put into operation a new Arctic shuttle tanker continued in 2019. with ice class Arc7, Mikhail Lazarev. The tanker is intended to serve the Novy Port project under a long-term charter agreement between PAO Sovcomflot The first of the three vessel, the LNG carrier SCF La Perouse, was put and PAO Gazprom Neft. into operation on 10 February 2020 and commenced a long-term charter with Total. Two similar vessels to be operated under agreements with Shell In terms of its technical characteristics, the Arctic shuttle tanker Mikhail are scheduled to join the SCF fleet in 2020-2021. Lazarev is one of the most advanced and high-tech vessels in the global tanker industry. The vessel continues a series of unique tankers These LNG carriers with a capacity of 174,000 cubic metres are fitted of the Shturman Albanov type, designed for year-round transportation with an upgraded Mark III Flex cargo containment system and dual-fuel of crude oil from the Novy Port oil and gas condensate field. These vessels diesel X-DF engines. Such a propulsion plant is more reliable and requires are capable of operating in the Arctic at temperatures down to–45°С, less time and resources for planned repairs compared to a dual fuel diesel and their draft enables them to manoeuvre freely in the shallow Gulf of Ob. electric engine (DFDE). This type of gas carrier consumes 30 % less bunkers than fourth-generation gas carriers. A small amount of boil-off asg and a boil- The first three vessels were put into service in 2016. Since then they off gas partial re-liquefaction system will enable the charterer to maximally have transported 9.5 million tonnes of oil via the Northern Sea Route. reduce cargo losses during long voyages and waiting time, giving vessels The successful experience in tanker operations in the extreme conditions of this type a competitive advantage. of the Arctic and further development of the Novy Port project created pre- conditions for increasing the number of vessels in the series.

PAO «Sovcomflot» 49 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Yamalmax Arctic LNG carriers Aframax shuttle tankers for the Sakhalin-1 project

In 2019, PAO Sovcomflot and PAO NOVATEK set up a joint venture, SMART In 2019, Sovcomflot Group entered into shipbuilding contracts for two LNG. This was a result of long-term cooperation started in 2010 when Aframax shuttle tankers with ice class 1C and a deadweight of 105,000 Sovcomflot proceeded to designing a logistic scheme for eastbound tonnes each. The vessels are intended to operate under long-term charter hydrocarbon shipments along the Northern Sea Route. Sovcomflot directly contracts with Exxon Neftegas Limited, the operator of the Sakhalin-1 participated in developing the transport component of the successfully project (development of oil and gas reserves in the Sea of Okhotsk, implemented Yamal LNG project, and today it operates the world’s first on the north-eastern shelf of Sakhalin Island). The new vessels were ordered Arctic LNG carrier, Christophe de Margerie. to renew the SCF Group fleet serving the De Kastri export terminal. They are scheduled to be put into service in 2022. The main task of the joint venture is to provide year-round LNG transportation from the Arctic LNG 2 and other current and prospective projects of NOVATEK.

The Arctic LNG 2 project involves the construction of up to 15 new- generation Arctic LNG carriers with ice class Arc7 (plus two optional vessels).

Shipbuilding contracts for the first five vessels for the Arctic LNG 2 project were concluded in 2019. The LNG carriers were ordered by a VEB Leasing Group company, with one vessel to be subsequently transferred for operation to SCF Group and four to SMART LNG after completion of construction. The shipbuilding contracts for the LNG carriers for SMART LNG entered into force after the end of the reporting period.

PAO «Sovcomflot» 51 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

3.2.3. IMPLEMENTATION OF THE SHIPBUILDING PROGRAMME During the reporting period, Sovcomflot Group put into service four new 3.3. Innovative vessels with a total deadweight of 381,000 tonnes: an Arctic shuttle tanker In 2019 Sovcomflot and three dual-fuel Aframax tankers. activities and R&D Group’s shipbuilding Shipbuilding portfolio of the Group as at 31 December 2019 1 programme included 19 vessels of six different No. Hull Type of vessel Deadweight, Ice class 3.3.1. AREAS OF INNOVATIVE ACTIVITIES types, including those number tonnes intended for the Novy 1 8006 Atlanticmax LNG carrier2 82,000 – Port, Sakhalin-1 and Arctic Sovcomflot Group’s innovative activities are carried out in accordance LNG 2 projects. with the requirements and methodological guidelines of the Federal Agency Sovcomflot is a world 2 8007 Atlanticmax LNG carrier 82,000 – for State Property Management (Rosimushchestvo), the Russian Ministry leader in developing of Economic Development and the Council for Economic Modernisation and implementing innovations in the field 3 8008 Atlanticmax LNG carrier 82,000 – and Innovative Development under the President of the Russian Federation. Priority directions for innovative development of the Group are determined of mari-time transport. in accordance with Decree No. 899 of the President of the Russian The Group is actively 4 036 LNG-fuelled MR tanker 51,000 1B Federation dated 7 July 2011. and consistently improving technologies As at 31 December 2019 and equipment, Sovcomflot Group’s 5 037 LNG-fuelled MR tanker 51,000 1B Sovcomflot is developing its own engineering school. SCF’s engineering, operations and training centres have been integrated at the St. Petersburg implementing order portfolio included international best 6 038 LNG-fuelled MR tanker 51,000 1B headquarters, creating a unique blend of knowledge and practical experience accumulated by the company and giving an additional impulse practices, improving to the development of unique industrial projects with an ice component. fleet management 7 041 Yamalmax Arctic LNG carrier 81,000 Arc7 and enhancing the scientific potential The main areas of innovative activities and scientific, R&D of employees, including 8 042 Yamalmax Arctic LNG carrier 81,000 Arc7 15 and technological projects of Sovcomflot Group in 2019 were seafarers and land-based VESSELS specialists 9 043 Yamalmax Arctic LNG carrier 81,000 Arc7 as follows:

with a total • Exploring opportunities for improving energy efficiency and reducing deadweight of 10 044 Yamalmax Arctic LNG carrier 81,000 Arc7 carbon, sulphur and nitrogen oxides emissions:

11 045 Yamalmax Arctic LNG carrier 81,000 Arc7 – using a boil-off gas reliquefaction system to return boil-off gas to the cargo tanks or use it as a fuel for the ship power plant on gas carriers (implemented as part of the construction of the LNG carrier 12 131110 LNG-fuelled Aframax tanker 114,000 1B SCF La Perouse added to the fleet in February 2020); 1,242 – a hull air lubrication system to reduce the resistance and increase 13 131120 LNG-fuelled Aframax tanker 114,000 1B the speed of the ship for SCF La Perouse-class LNG carriers (not TONNES. implemented at this stage, is being considered in the context of future 14 2367 Aframax shuttle tanker 105,000 1C projects); – fitting rotor sails to LNG-fuelled Aframax vessels (not implemented at this stage, is being considered in the context of future projects). 15 2368 Aframax shuttle tanker 105,000 1C

Total 1,242,000

1. The vessels with hull numbers 036, 037, 038, 131110 and 131120 were ordered by a VEB Leasing Group company and are to be subsequently transferred to SCF Group for operation after completion of construction. The vessels with hull numbers 041, 042, 043, 044 and 045 were ordered by a VEB Leasing Group company, with one vessel to be transferred for operation to SCF Group and four to SMART LNG, a joint venture of PAO Sovcomflot and PAO NOVATEK, after completion of construction. The shipbuilding contracts for the LNG carriers for SMART LNG entered into force after the end of the reporting period. 2. The LNG carrier SCF La Perouse was accepted for operation on 10 February 2020.

PAO «Sovcomflot» 53 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

• Working on projects for new types of LNG-fuelled vessels - a VLCC tanker, The functional capabilities of the operations centre for real-time vessel an offshore platform supply vessel, an icebreaker. tracking, which was opened at the Sovcomflot headquarters in St. • Participating in the development of automated and remote control Petersburg a year earlier, were expanded during 2019. In particular, SCF technologies for large-capacity commercial vessels, which involves specialists developed and launched Ice Observer, a mobile application creating and validating technical tools and drafting requirements that simplified and systematised data collection from ships regarding ice The operational centre to be incorporated into Russian and international legal and tech- conditions, and also digitised the database of ice observations carried out for real-time vessel nical regulations that create conditions for operating unmanned on SCF ships while serving the Prirazlomnoye, Varandey and Novy Port tracking was opened vessels. As at the end of the reporting period SCF Group masters were projects. The database is used to teach artificial intelligence systems used at the Sovcomflot participating, as part of an expert council, in preparations for the first for mapping ice conditions, plotting the safest and most optimal route in ice, headquarters in St. stage of pilot operation, which includes the development of the basic looking for dangerous ice formations and identifying areas with complex ice Petersburg at the end automated and remote control algorithms and their testing on shore test- conditions. of 2018. bed based on the array of data received from vessels. The centre’s equipment allows for the following tasks to be performed using • Participating in the DecarbonICE project initiated by Maritime artificial intelligence: Development Center, a non-profit environmental research organisation. The company is exploring opportunities for employing the proposed • Controlling and analysing navigation safety data; technology, which allows using existing marine fuels while significantly • Optimising ship routes taking into account ice conditions, weather reducing carbon dioxide generation. conditions, and business objectives; • Conducting research, calculations and experiments to select • Monitoring the ship’s operation in real time (collecting and processing optimal parameters for ship power plants in terms of compliance the ship’s navigation and technical performance parameters, video feeds with conventional requirements. from surveillance cameras); • In the reporting period company experts carried out work at the SCF • Special Arctic navigation control capabilities: analysis of ice conditions training centre in St. Petersburg to determine the conditions for safe and movements of ships, identification of dangerous ice formations navigation within the sea channel of the Gulf of Ob by modelling and areas with complex ice conditions, development of recommendations the movement of a gas carrier in waters covered with ice of various for masters and determination of the safest route in ice conditions; thickness and a counter movement of two vessels in the channel • Control and analysis of the performance of the ship’s systems in terms on a navigation simulator. Also, recommendations and regulations of energy efficiency, bunker consumption, etc.; concerning navigation in the sea channel of the Gulf of Ob were • Remote access to the ship’s systems, log of faults, etc. for onshore developed. As a result, the Russian Ministry of Transport made a decision specialists to analyse the technical condition of the ship in case to reconstruct the sea channel. of malfunctions in ship systems and help crews to fix faults. • Employees from the SCF training centre took part in the research work on the topic «Development of regulations for bunkering ships with liquefied natural gas», which involves the development of national level standards that set uniform requirements for all participants in the open market for LNG bunkering services. • The Sovcomflot Group’s Green Charter - a declaration of commitments to fight climate change by using innovative technologies and raising personnel awareness on environmental protection (for more details see section 6.4.1. Environmental protection policy) - was approved in March 2019.

Sovcomflot stimulates professional development among its staff and encourages employees to pursue additional education in order to gain in-depth knowledge of modern technologies in fleet management. SCF’s engineering staff have very high scientific capabilities: currently, 33 seafarers, who completed post-graduate studies and received the title of Candidate of Technical Sciences or are preparing to defend their theses, work in the Company’s fleet.

PAO «Sovcomflot» 55 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Key achievements in innovation and R&D Financing of innovative activities

• Sovcomflot Group won the award for ‘Company of the Year’ at the 2019 The financing of R&D, engineering activities, professional training, retraining Lloyd’s List Europe Awards. In particular, the jury noted the successful and skill improvement of PAO Sovcomflot personnel in 2019 amounted Industry implementation of technologies for using cleaner LNG fuel for large- to US$4.7 million. capacity tankers, inauguration of a state-of-the-art operations centre recognition and industry-leading safety record, which comes despite operating in some for innovation of the worlds’ harshest conditions. • The Gagarin Prospect tanker was named ‘Ship of the Year’ at the Marine Structure of R&D expenses in 2019, % achievements Propulsion Awards 2019. Also, the vessel won the Next Generation Ship Award 2019. Gagarin Prospect is the lead ship in the ‘Green Funnel’ series in 2019: of Aframax crude oil tankers using LNG as the primary fuel. As at 31 December 2019 the SCF Group fleet included six tankers running on LNG. The results of the first year of operation of the series showed that the use of LNG allows for a 30% reduction in carbon dioxide emissions compared 37 to similar vessels that run on conventional heavy fuel. • Gagarin Prospect and Lomonosov Prospect received Green Award or the constructon o certificates, a quality mark for vessels that significantly surpass convention ne shps SCF named ‘Company requirements related to navigation safety and environmental protection. rete personne • Yevgeny Primakov, a multifunctional icebreaking platform supply vessel, trnn, retrnn n s of the Year’ by Lloyd’s was named Support Vessel of the Year by Offshore Support Journal, mproement List, commended an international trade publication. The vessel was accepted for operation 63 for its pioneering in 2018 and is employed to support offshore oil and gas platforms steps towards of the Sakhalin-2 project on the continental shelf of the Sea of Okhotsk decarbonisation and Sakhalin Island under a long-term agreement with Sakhalin Energy. and the introduction • A new edition of a unique training manual, Practical Recommendations of advanced by SCF Captains for Steering Vessels in Ice Conditions, was published technology. in January 2019. The author team is comprised of ice captains of Sovcomflot ships that participated in the implementation of Arctic industrial projects. The manual is based on the consolidated and systematised experience gained on the Sakhalin-1, Varandey, Prirazlomnoye and Novy Port projects. In the new edition, practical recommendations on the use of Azipod propulsion units to manoeuvre Arctic shuttle tankers were complemented by experience in using them in heavy ice conditions in the Kara Sea and the Gulf of Ob. • During the reporting period, work was also undertaken to prepare NEXT a new training manual, Practical Recommendations for Steering GENERATION a Vessel with three Azipod Propulsion Units in Ice Conditions in Relation SHIP AWARD to the Yamal LNG Project, which summarizes the experience in steering Gagarin Prospect icebreaking vessels with a powerful power plant accumulated in the Yamal named ‘Ship LNG project. Special attention was paid to navigation in the most difficult area - the outlet of the Ob River to the Kara Sea, where large-capacity of the Year’ at 2019 vessels have to sail along the long and narrow Sea Channel in conditions Marine Propulsion of constant ice drift. The new manual is expected to be published in 2020. Awards and received • During the reporting period Sovcomflot continued to consistently introduce the Nor-Shipping Next cargo transportation by large-capacity tankers using LNG fuel in Arctic Generation Ship Award navigation. During the 2019 summer navigation period the company’s three LNG-fuelled tankers completed eastbound voyages along the high-latitude Northern Sea Route and one tanker from the ‘Green Funnel’ series sailed through this route in the western direction.

Yevgeny Primakov named ‘Support Vessel of the Year’ by Offshore Support Journal

PAO «Sovcomflot» 57 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

3.3.2. ASSESSMENT OF THE INNOVATIVE DEVELOPMENT PERFORMANCE 3.4. Financial results

The integral key performance indicator of innovative development includes The Company four elements: 3.4.1. BALANCE SHEET INDICATORS In 2019 the tanker regularly monitors market saw an increase and analyses the integral • The level of R&D financing expenditure at PAO Sovcomflot. The target The financial statements of Sovcomflot Group were prepared according in rates, which reached key performance is no less than 0.4 % of the annual net revenue; to IFRS and disclosed online. Below is a brief overview and analysis of the key its peak in the fourth indicator of innovative • The level of navigation safety and the Company’s compliance financial indicators of the Group. quarter of the reporting development. with customer requirements - the average number of observations period, with the average from inspections by OCIMF member companies for all SCF vessels during The book value of non-current assets increased by 0.5 % from US$6,601.6 annual freight rates the reporting period. The target is no higher than the industry average, million at the end of 2018 to US$6,636.3 million at the end of the reporting exceeding average which is calculated annually based on ship inspection results according period. Total assets of the Group amounted to US$7,335.9 million as at 31 levels for the past 25 to OCIMF and IN-TERTANKO data; December 2019, up 2.7 % year-on-year. Shareholders’ equity increased by 4.6 years for the first time • The level of operating expenses per vessel, determined as a percentage % to US$3,504.6 million. since 2015. Against of industry average (based on data from independent analytical sources). this background, the Group’s balanced The target is less than 100 %; The Group maintains a stable programme of capital investments during all freight policy • The level of vessel crew costs, determined as a percentage of industry phases of the shipping cycle. Investments in fleet construction and capital enabled the Group % average (based on data from independent analytical sources). The target expenditure on fleet modernisation and repairs1 in 2019 totalled US$423.8 105.57 to optimise revenues is less than 100 %. million (2018: US$418.1 million), with the amount payable under current from the conventional shipbuilding contracts in 2020-2022 at the end of 2019 being US$508.3 the value of the integral fleet in the reporting million. performance indicator period. At the same time, of innovative measures taken to diversify The investment programme and operating activities were financed through development of PAO the fleet with a focus secured bank loans (as at 31 December 2019, total debt to banks amounted Sovcomflot in 2019 on the development to US$2,538.8 million), placement of unse-cured Eurobonds amounting of industrial business to US$900 million, and operating cash flow. The company also en-tered continued to help into lease agreements providing for the delivery of vessels in 2022-2023 maintain high long- for a total amount of US$1,140.6 million. term premium income and a stable financial Despite the continued volatility in financial markets amid the unstable position of the company. geopolitical and economic situation in the world, the Group retained access to both foreign and Russian debt capital mar-kets.

The Group concluded two new credit facility agreements for a total amount of US$473 million. Proceeds under these agreements were used to finance the construction of new vessels and re-finance existing credit liabilities. The Company also drew down funds under previously conclud-ed credit facility agreements to finance the delivery of new vessels in the reporting 7,335.9 year. In the reporting year, the Group’s borrowers and guarantors fully US$ MILLION complied with all requirements and terms (“covenants”) of corresponding credit facility agreements. the amount of the SCF Group carefully monitors capital structure and works on its optimisation. SCF Group’s assets Sovcomflot Group’s leverage (net debt to equity ratio) at the end of 2019 at the end of 2019 was 47 %, net debt to EBITDA ratio was 3.72.

1. Investments are as reported in the cash flow statement in the consolidated financial statements of PAO Sovcomflot prepared under IFRS, which includes expenditure on fleet and expenditure on vessels under construction. 2. The figure indicated here and hereafter refers to adjusted EBITDA – see the definition in the glossary (Appendix to this Annual Report).

PAO «Sovcomflot» 59 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

Capital structure dynamics, USD million Key income statement indicators (USD million)

Name 2019 2018 Difference, % Name 2019 2018 Difference, % Secured loans and finance lease liabilities 2,599.1 2,575.5 0.9 Revenue 1,665.2 1,519.9 9.6 Eurobonds and other loans 900.4 902.7 –0.3 TCE revenue 1,265.5 1,074.7 17.8 Less: cash and bank deposits, including restricted cash (417.2) (307.4) 35.7 EBITDA 823.0 580.7 41.7 Net debt 3,082.3 3,170.8 –2.8 Net profit / (loss) 225.4 (45.6) - Equity 3,504.6 3,350.1 4.6 Total capital 1 6,586.9 6,520.8 1.0 In the reporting year the Group continued to implement consistently its Net debt/equity ratio, % 46.8 48.6 -1.8 p.p. industrial development strategy aimed at expanding the offshore and gas business segments, whose share of time charter revenue reached 50.5 Net debt/EBITDA ratio 3.7 5.5 –31.3 %, with revenues from the conventional fleet operations (transportation of crude oil and petroleum products) accounting for 45 %. 823.0 The Group’s current leverage is more favourable compared to the industry US$ MILLION average, which is traditionally impacted by high capital intensity of investments and volatility of the freight market. Structure of TCE revenue by operating segments (%) the EBITDA for 2019 (41.7 % higher than Financial statements are available online: 4 in 2018)

Consolidated Financial Statements in Roubles and Auditor’s Report 14 Servicing of oﬀshore ﬁelds

Consolidated Financial Statements in U.S. Dollars and Auditor’s Report s trnsportton 36 Crue o trnsportton Accounting (Financial) Statements and Auditor’s Report etroeum proucts trnsportton

ther

31 3.4.2. INCOME STATEMENT INDICATORS 15

The positive situation The revenue amounted to US$1,665.2 million, up 9.6 % on the previous Structure of the main expense items (%) in the tanker market period, with a 17.8 % increase in TCE revenue, which reached US$1,265.5 and the consistently million. high share of industrial 7 1 portfolio had a positive In 2019 Sovcomflot significantly improved its operating profitability esses runnn costs impact on the Group’s and posted a net profit of US$225.4 million versus a loss of US$41.6 24 13 operating results million in 2018. In accordance with IFRS, in 2019 the Company recognised eprecton, mortston in 2019. impairment expenses of US$23.6 million in relation to the fleet and other n mprment assets. oe epenses n commssons

nncn costs

ener n mnstrte epenses

27 ther 1,665.2 28 US$ MILLION

the revenue generated in 2019 (up 9.6 % from 2018)

1. Total capital = net debt plus total equity.

PAO «Sovcomflot» 61 About Strategy Corporate Share capital and profit Sustainable Annexes 2019 Annual report Group governance distribution development Operating results

In 2019, 4.1 % savings were achieved in the vessel’s running costs budget Credit ratings of Sovcomflot Group as of 31 December 2019 through the cost optimisation programme. Vessel’s running costs S&P GLOBAL RAT-INGS Fitch Raitings Moody’s Investors Service for the reporting period amounted to US$356.3 mil-lion. The 10 % reduction in voyage costs and commissions (to US$399.7 million) was due to a decline Credit rating BB+ BB+ Ba1 in bunker prices and a decrease in the number of vessels operating Outlook Stable Stable Stable in the spot market. General and administrative expenses decreased by 3 % to US$108.0 million. Financial debt servicing costs excluding interest on leasing obligations decreased by 1 % compared to 2018 and amounted to US$198.4 million. Amid the positive debt capital market dynamics for issuers at the end of the reporting period the company’s Eurobonds traded at a premium to par value and had a yield to maturity in 2023 of 3.2% with an average yield 3.4.3. LIQUIDITY INDICATORS for the year of 4.5%.

The Group has a strong liquidity cushion, which represents a significant positive factor for maintaining the company’s creditworthiness and financial stability. Сash balances in bank accounts and their equivalents totalled Yield to maturity of bonds of Sovcomflot Group and Russian Federation (%) US$374.8 million at the end of 2019, which is in line with the company’s cash management policy. The Group also had unused revolving credit facilities of US$84.9 million and available special-purpose credit facilities for new builds of US$349.5 million. Thus, the company’s current liquidity as at 31 December 2019 totalled US$809.2 million. The company’s liquidity at the end of 2019 fully covers the current investment commitments un-der the existing shipbuilding programme for 2020 amounting to US$365 million.

3.4.4. CREDIT RATING OF THE GROUP

During 2019 Moody’s Investors Service affirmed the Group’s credit rating at Ba1 2 Sovcomflot Group with a stable outlook. S&P Global Ratings affirmed the existing credit continued to work rating for the Group at BB+ with a stable outlook. Fitch Ratings upgraded 1 with international the Group’s rating to BB+ with a stable outlook. 0 rating agencies. ul 2019 Sep 2019 2019 ov an 2019 ar 2019 May - 2019 May SC 202 2022

Source: Citibank

PAO «Sovcomflot» 63 4. CORPORATE The high development level of the corporate GOVERNANCE governance system at PAO Sovcomflot facilitates improvements in investment attractiveness and an increase in operational efficiency. PAO Sovcomflot’s plans to access public capital markets make the development of corporate governance practices a priority task. About Strategy Operating Share capital and profit Sustainable Annexes 2019 Annual report Group results distribution development Corporate governance

LIST OF LOCAL REGULATIONS IN THE FIELD OF CORPORATE 4.1. Corporate governance GOVERNANCE

1. The Charter of PAO Sovcomflot (the new version was approved system by Instructions No. 271-r of the Federal Agency for State Property Management dated 31 May 2017); 2. Amendments to the Charter of PAO Sovcomflot (approved by Instructions No. 70-r of the Federal Agency for State Property Management dated 13 February 2020); 3. Amendments to the Charter of PAO Sovcomflot (approved by Instructions PAO Sovcomflot seeks to ensure that its corporate governance system No. 373-r of the Federal Agency for State Property Management dated complies with international standards – this requires complete adherence 26 June 2019); to both legislative requirements and ethical standards in the spirit of best 4. Amendments to the Charter of PAO Sovcomflot (approved by Instructions corporate governance practices. To this end, PAO Sovcomflot works actively No. 449-r of the Federal Agency for State Property Management dated to improve its corporate governance system taking into account the specifics 29 June 2018); of its operations. 5. Corporate Governance Code (the new version was approved by the PAO Sovcomflot Board of Directors decision dated 10 November 2015, Minutes No. 149); 6. Regulations on the General Meeting of Shareholders of PAO Sovcomflot Corporate governance system of PAO Sovcomflot approved by Instructions No. 310-r of the Federal Agency for State Property Management dated 16 June 2017; General meeting of shareholders Election Auditing 7. Regulations on the Board of Directors (the new version was approved (Russian Federation represented by the Federal commission by Instructions No. 449-r of the Federal Agency for State Property Agency for State Property Management) Reporting Management dated 29 June 2018); 8. Regulations on the Strategy Committee of the Board of Directors Reporting Election Reporting, Responsobility External (approved by the Board of Directors decision dated 5 February 2009, auditor Minutes No. 95); 9. Regulations on the Audit Committee of the Board of Directors (the new Board of directors version was ap-proved by the Board of Directors decision dated 12 members of the Board of Directors: 26 May 2017, Minutes No. 163); 3 independent members, 9 government appointees, 10. Regulations on the HR and Compensation Committee of the Board including the Chief Executive O cer of Directors (the new version was approved by the Board of Directors decision dated 26 May 2017, Minutes No. 163); Functional reporting 11. Regulations on the Committee for Innovative Development and Technical line Internal audit Policy (ap-proved by the Board of Directors decision dated 25 February Strategy committee Audit committee department 2011, Minutes No. 109); 12. Regulations on the Executive Board (approved by Instructions No. 838-r Committee for innova- HR and Compensa- of the Federal Agency for State Property Management dated 30 June 2009); tive development and tion Committee 13. Regulations on the Chief Executive Officer (approved by Instructions No. technical policy 696-r of the Federal Agency for State Property Management dated 30 June 2014); 14. Regulations on the Auditing Commission (the new version was approved Executive bodies by Instructions No. 519-r of the Federal Agency for State Property Management dated 30 June 2016); 15. Regulations on the Internal Audit Department of PAO Sovcomflot Administrative (approved by the Board of Directors decision dated 26 May 2017, Minutes Executive bodies Chief executive o cer reporting line No. 163), with the amendments and additions approved by the PAO 8 members of the Executive and president Sovcomflot Board of Directors on 26 February 2019, Minutes No. 179); Board, including the President 16. Regulations on the Corporate Secretary of PAO Sovcomflot (approved by the Board of Directors decision dated 11 April 2017, Minutes No. 162). 17. Dividend Policy (approved by the Board of Directors decision dated 14 December 2012, Minutes No. 125).

Investment and Asset Finance Committee Freight Insurance Management Committee for Social and HR Policy Committee Committee Committee and Corporate Ethics

Committee Committee for Maritime Safety, Committee Committee for Corporate Identity Environmental for Technical for Information and Public Relations Protection, Quality Policy – Technical Technologies and New Technologies Council

PAO «Sovcomflot» 67 About Strategy Operating Share capital and profit Sustainable Annexes 2019 Annual report Group results distribution development Corporate governance

IMPROVEMENT OF THE CORPORATE GOVERNANCE SYSTEM

The Company recognises the importance of a high level of corporate The Company has had a Corporate Governance Code since 2007, governance. The Company’s corporate governance system is based and a Corporate Governance Code fully aligned with the CG Code on Russian statutory requirements and applicable international best recommended by the Bank of Russia since 2015. practices of corporate governance. The basic document that sets forth the key principles and elements underlying the Company’s corporate At least three independent directors have been elected to the Company’s governance system is the PAO Sovcomflot Corporate Governance Code. Board of Directors since 2008.

The initial version of the PAO Sovcomflot Corporate Governance Code (the Since 2006 PAO Sovcomflot has taken out liability insurance for members Code of Corporate Conduct) was approved by the Board of Directors on 22 of the Board of Directors and management. February 2007 (Minutes No. 80). The current version of the PAO Sovcomflot Corporate Governance Code was developed on the basis of the Federal The Board of Directors has established a strategy committee, an audit Law on Joint-Stock Companies, the Charter and other internal documents committee and an HR and compensation committee operating since 2008 of the Company, recommendations of the Corporate Governance Code and an innovative development and technical policy committee operating approved by the Bank of Russia (Bank of Russia Letter No. 06-52/2463 dated since 2011. 10 April 2014), recommendations of the Principles of Corporate Governance of the Organization for Economic Cooperation and Development (OECD) Since 2006 the Company has been publicly disclosing its audited IFRS and the listing requirements of Russian and foreign stock exchanges, consolidated financial statements in accordance with the requirements and was approved by the PAO Sovcomflot Board of Directors decision dated of rating agencies and stock market regulators (the Company has 10 November 2015 (Minutes No. 149). been preparing and disclosing its audited IFRS financial statements to the shareholders and creditors since 1988). The Corporate Governance Code is a set of rules, standards, and internal regulations, which are used by PAO Sovcomflot in the course of its Since 2012 the Company has been publicly disclosing information activities, and which are based on a balanced consideration of the interests in accordance with the statutory disclosure requirements. of the Company’s shareholders, management bodies and other stakeholders. The goal of the Corporate Governance Code is to ensure a high level From 2010 one of the Sovcomflot Group companies has been an issuer of corporate governance and professional and business ethics necessary of securities (bonds) listed on the London and Irish stock exchanges to achieve the strategic goals and objectives determined by the Charter and meeting the requirements established by the U.S. Securities and other internal documents of the Company. and Exchange Commission for offering to U.S. investors under Rule 144A.

The basic principles of corporate governance in the Russian Federation PAO Sovcomflot is continuously improving its corporate governance system, are defined in the Corporate Governance Code (the «CG Code») approved taking into account the most CG Code recommendations and the relevant by the Bank of Russia and recommended for use by joint-stock companies. best global practices of corporate governance. Based on the results of the assessment performed by the Company to evaluate compliance with the CG Code recommendations, it was In the reporting year the Company continued work to improve the corporate determined that PAO Sovcomflot complied with most recommendations. governance model and practices. In accordance with the road map for implementing the CG Code at PAO Sovcomflot, approved by the Board Statistics of compliance with the CG Code provisions based on the report on compliance with the principles of Directors in 2015, the following key internal documents that set forth and recommendations of the Bank of Russia Corporate Governance Code (Appendix 1 to this report) the principles of corporate governance were updated (or re-approved): Amendments to the Charter of PAO Sovcomflot and Regulations on the Audit CG Code section Principles recommended Observed Partially Not observed1 Department. These documents were updated to reflect recommendations by the Code observed of the CG Code, as well as the specifics of the Company’s operations. Shareholder rights 13 5 - 8 Board of Directors 36 25 9 2 Corporate Secretary 2 1 1 - Compensation system 10 8 - 2 Risk management system 6 6 - - Disclosure of information 7 6 1 - Material corporate actions 5 4 1 - Total 79 55 12 12

1. Not observed as non-applicable.

PAO «Sovcomflot» 69 About Strategy Operating Share capital and profit Sustainable Annexes 2019 Annual report Group results distribution development Corporate governance

MECHANISMS FOR MANAGING SUSTAINABLE DEVELOPMENT AND SOCIAL RESPONSIBILITY 4.2. General Meeting

Mechanisms related to managing sustainable development and social responsibility are embedded in the PAO Sovcomflot corporate governance of Shareholders system. In the course of their activities, governing bodies consider a number of issues, including those related to occupational health and safety, HR management, charity work, environmental protection, etc. In accordance with Clause 5 of the Regulations on the Management of the Federally Owned Shares of Open Joint-Stock Companies and Exercising the Special Right for the Participation of the Russian THE COMPANY’S ANTI-CORRUPTION POLICY Federation in the Management of Open Joint-Stock Companies (the “Golden Share”) approved by Russian Government Resolution No. 738 dated 3 PAO Sovcomflot, through its governing bodies and employees, ensures December 2004, the rights of the shareholder – the Russian Federation compliance with the re-quirements of current legislation of the Russian – are exercised by the Federal Agency for State Property Management, Federation on countering corruption, including measures to prevent as agreed with the Russian Ministry of Transport. and combat corruption offences. The Company has an Anti-Corruption Policy and a hot line operating since 2015. A new version of the Anti-Corruption On 26 June 2019 the PAO Sovcomflot Annual General Meeting Policy was approved by the PAO Sovcomflot Executive Board (Minutes No. of Shareholders was held (Instructions No. 373-r of the Federal Agency 30(975) dated 29 August 2019). The document sets for the rules of standards for State Property Management dated 26 June 2019), which adopted of doing business and applies to all Sovcomflot Group companies. the following resolutions: The Company’s Executive Board, at the same meeting, approved the PAO • Approve the 2018 Annual Report of PAO Sovcomflot; Sovcomflot Code of Corporate Ethics, which contains the basic ethical • Approve the annual accounting (financial) statements of PAO Sovcomflot principles and priorities of the Company and recommendations on how for 2018; the Sovcomflot Group employees should behave when making decisions • Approve the following distribution of the net profit of PAO Sovcomflot in the course of their professional activities. for 2018 amounting to RUB 2,869,589 thousand: In 2017 the PAO Sovcomflot Executive Board made a decision – for payment of dividends on the shares of PAO Sovcomflot for 2018: on the Company’s accession to the Anti-Corruption Charter of Russian RUB 1,434,795 thousand; Business to implement measures aimed at preventing and combating – earnings to be retained by PAO Sovcomflot: RUB 1,434,794 thousand; corruption and create conditions for public condemnation and rejection of corruption in dealings with government authorities and in corporate relations. The Company was included in the consolidated register Pay the dividends on the ordinary shares of PAO Sovcomflot based on 2018 of parties to the Anti-Corruption Charter of Russian Business by the order performance in the amount of RUB 1,434,795 thousand and set the 10th day of the President of the Russian Union of Industrialists and Entrepreneurs following the date of the decision to pay dividends as the dividend record dated 14 November 2017. date, with the dividend payment dead-line set at 25 days after the dividend record date;

RESOLUTION OF CONFLICTS OF INTEREST IN THE COMPANY • Amend the PAO Sovcomflot Charter as regards the number of the Board of Directors members; The general policy for regulating conflicts of interest involving PAO • Elect members of the PAO Sovcomflot Board of Directors and Auditing Sovcomflot is determined by its Board of Directors. The mechanism Commission; for notifying the management bodies of PAO Sovcomflot of any conflicts • Pay compensation to the members of the PAO Sovcomflot Board of interest is determined by the Regulations on the Board of Direc- of Directors who are non-government officials in the amount determined tors, as well as the current Corporate Governance Code. The Company in accordance with the Company’s internal documents; has an approved policy governing interested party transactions • Approve Ernst & Young LLC as the auditor of PAO Sovcomflot for 2019. in Sovcomflot Group that has been in effect since 2015, which also provides for a mechanism for resolving conflicts of interest in the Group. At the extraordinary general meeting of shareholders of PAO Sovcomflot held on 23 September 2019 ((Instructions No. 592-r of the Federal Agency for State Property Management dated 23 September 2020) it was decided to early terminate the powers of the sole executive body (Chief Executive Officer), appoint a new Chief Executive Officer, terminate the powers of the members of the PAO Sovcomflot Board of Directors and elect a new Board of Directors, numbering twelve.

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According to the Company’s Charter, at least 9 persons are elected 4.3. Board of Directors to the Board of Directors, which meets the statutory requirements as well as the Company’s needs. The personal composition of the Board is determined by the General Meeting of Shareholders (a decision of the sole of PAO Sovcomflot shareholder). Independent members of the Company’s Board of Directors are elected following a review of the candidates by the commission for selecting candidates to the governing bodies of companies with state An important role 4.3.1. COMPOSITION OF THE BOARD OF DIRECTORS participation, formed annually by the shareholder’s representative in the organisation (Federal Agency for State Property Management) with the participation of an effective There were three different compositions of the PAO Sovcomflot Board of the Russian Ministry of Transport, which enables the shareholder corporate governance of Directors during the reporting period: to receive information about the candidates necessary to get an idea system is played of their personal and professional qualities. by the PAO Sovcomflot 1. The Board of Directors elected by the Annual General Meeting Board of Directors, of Shareholders dated 29 June 2018 (Instructions No. 449-r of the Federal Agency for State Property Management dated 29 June 2018) as follows: Ilya Klebanov was elected Chairman of the Board of Directors in accordance which is responsible with the PAO Sovcomflot Board of Directors decision (Minutes No. 173). for the strategic At the Board of Directors meeting on 24 September 2019, the Board elected . Ivan Glumov (independent director) leadership of the Group’s Sergey Frank as its Chairman. activities and determines . Ilya Klebanov (government appointee) . Alexey Klyavin (independent director) the vision, mission, Independent directors have been elected to the Board of Directors of PAO and strategic . David Moorhouse (government appointee) . Viktor Olersky (government appointee) Sovcomflot annually since 2008, in accordance with the criteria established development in the current Corporate Governance Code and in Russian Government of the Group . Oksana Tarasenko (government appointee) . Sergey Frank (government appointee) Resolution No. 738. Three independent directors were elected to the Board . Walid Chammah (independent director of Directors (as at 31 December 2019): Alexey Klyavin, Walid Chammah, . Andrey Sharonov (independent director) and Andrey Sharonov.

2. The Board of Directors elected by the Annual General Meeting of Shareholders dated 26 June 2019 (Instructions No. 474-r of the Federal Agency for State Property Management dated 26 June 2019) as follows: Information on members of the PAO Sovcomflot Board of Directors (as . Alexander Abramov (government appointee) at 31 December 2019) . Ilya Klebanov (government appointee) . David Moorhouse (government appointee) During 1984-1989 he was Deputy Principal of Admiral Nevelskoy Far . Lyubov Nisenboym (government appointee) Eastern Higher Marine Engineering College and was engaged in teaching. . Pavel Sorokin (government appointee) From 1989, he was Head of Foreign Economic Relations and then Deputy . Sergey Frank (government appointee) General Director for Economics at the Far Eastern Shipping Company. In 1995 . Yury Tsvetkov (government appointee) he was appointed Deputy Director of the Department of Maritime Transport . Alexey Klyavin (independent director) at the Russian Ministry of Transport. Between 1998 and 2004 he served . Walid Chammah (independent director) as Minister of Transport of the Russian Federation. During these years . Andrey Sharonov (independent director) he headed the Aeroflot - RIA Board of Directors.

3. The Board of Directors elected by the Extraordinary General Meeting In October 2004 Sergey Frank was elected Chief Executive Officer of OAO of Shareholders dated 23 September 2019 (Instructions No. 592-r Sovcomflot and joined its Board of Directors. He held this position until of the Federal Agency for State Property Management dated 23 September 2019, when he was elected Chairman of the Company’s Board September 2019) as follows: of Directors. At present he is a member of the Boards of Directors of OAO RZD and PAO Novoship, Vice President and Board Member of the Russian Sergey Frank . Alexander Abramov (government appointee) Union of Industrialists and Entrepreneurs, President of the Russian Chamber Chairman of the Board . Ilya Klebanov (government appointee) of Shipping, and Chairman of the Supervisory Council and Honorary of Directors of PAO Sovcomflot . David Moorhouse (government appointee) President of Admiral Nevelskoy Maritime State University. Born in 1960. . Lyubov Nisenboym (government appointee) Education: Admiral Nevelskoy Far Eastern Higher Marine . Pavel Sorokin (government appointee) Engineering College, specialising . Oksana Tarasenko (government appointee) in Maritime Navigation; Far . Igor Tonkovidov (government appointee) Eastern State University, . Sergey Frank (government appointee) specialising in Jurisprudence. . Yury Tsvetkov (government appointee) Academic degree: Candidate . Alexey Klyavin (independent director) of Technical Sciences. . Walid Chammah (independent director) . Andrey Sharonov (independent director)

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He began his career path in 1979, worked as a foreman and master After graduating from the Maritime School, he served as third, second, at the wagon depot of Moscow Railways. Beginning in 1981, he was engaged then first officer on ships operated by the Transport and Reefer Fleet in Komsomol work. In 1991 he became the Chairman of the Moscow Directorate (Mortransflot) in Kaliningrad. In 1990 he was appointed Coordinating Council of the regional chapter of the Russian Union of Youth. as Senior Economist at VVO Sovfracht of the USSR Ministry of Merchant From 1997, he was engaged in banking business. In 1997 he was appointed Marine. In 1992 he headed the Maritime Agency Sovfracht. Afterwards as Head of Government Relations - First Vice President of Alfa-Bank CIB he was the representative of Sovfracht and Rosmorflot in Portugal. In 1997 and Deputy Chairman of the Executive Board of OAO Alfa-Bank. In 1999 he became Deputy Head of the Shipping Policy Department of the Ministry he became Deputy Head of the Russian Presidential Administration of Transport of the Russian Federation. During 1998-2002 he was and a year later Secretary of the State Council of the Russian Federation. He representative of the Russian Ministry of Transport in Denmark. Between was Assistant to the President of the Russian Federation from 2004 to 2012 2003 and 2011 he held various positions in the Russian Ministry of Transport: and Adviser to the President of the Russian Federation in 2012-2013. Since Assistant to the Minister, Head of the Shipping Policy Department, Deputy 2016, he has been Chief Adviser to the Chairman of the Council of the Central Director, Acting Director and then Director of the Department of State Policy Union of Consumer Societies of the Russian Federation (Centrosoyuz for Maritime and River Transport. From 2013 he is President of the Russian Alexander Abramov of Russia) Chamber of Shipping. Alexey Klyavin Member of the PAO Sovcomflot Member of the PAO Sovcomflot Board of Directors Alexander Abramov was elected to the Board of Directors of PAO Sovcomflot Alexey Klyavin has been a member of the PAO Sovcomflot Board of Directors Board of Directors (independent Born in 1957. in 2019. since 2012. At present he is also a member of the Supervisory Board director) Education: Moscow Institute of FAU «Russian River Register» and a member of the Board of Directors Born in 1954. of Railway Engineers; Institute of the Maritime Joint-Stock Bank. Education: Kaliningrad of Retraining and Advanced Higher Engineering Training under the Government Maritime School, specialising of the Russian Federation. as Engineer-Navigator.

Between 1995 and 1999 Mr Moorhouse was Executive V.P. of the Kvaerner Group and from 1999 to 2007 he was Executive Chairman of Lloyd’s Register Group, the world’s largest classification society: he was Chairman During 1974-1977 he was employed at the Electron Production Association of the Lloyd’s General Committee and Chairman of Lloyds Register, as Engineer. From 1977 to 1997 he worked in the Leningrad Optics from 2006-2019 he served as Chairman of the Board of Directors and Mechanics Association, where he went all the way from a design and Chairman of the Nominations Committee at Braemar Shipping engineer to Chief Executive Officer. In December 1997 he was appointed Services plc. From 2013 to 2019 he was Senior Non-Executive of the Board First Vice-Governor of Saint Petersburg - Chairman of the Committee of Directors at James Fisher and Sons Shipping Services plc. At present for Economics and Industrial Policy. From 1998 he was Deputy Chairman he serves as a Trustee Director of Trafalgar House Trustees Limited and Vice of the Government of the Russian Federation, from 2001 Deputy Chairman Chairman of the Mission to Seafarers. of the Government of the Russian Federation - Minister of Industry, Science and Technologies of the Russian Federation and from 2022 Minister David Moorhouse has been a member of the PAO Sovcomflot Board of Industry, Science and Technologies of the Russian Federation. Dur-ing of Directors since 2010. 2003-2011 he served as Plenipotentiary Representative of the Russian President for the North-West Federal District. David Moorhouse Member of the PAO Sovcomflot Board of Directors Ilya Klebanov Between 2011 and 2019 Ilya Klebanov was Chairman of the PAO Sovcomflot Born in 1947. Member of the PAO Sovcomflot Board of Directors; at present he is a member of the Company’s Board Education: University of London, Board of Directors of Directors. He also serves on the Board of Directors of PAO Transneft London City University, South- Born in 1951. and heads the Boards of Directors of OOO Neftegazindustria-Invest and AO ampton University. Education: M.I. Kalinin Leningrad SHVABE (GK Rostekh). Academic degree: Doctor Polytechnic Institute, specialising of Science. Life member as Engineer-Electrophysicist; of the UK Foundation for Science Matsushita School of Business, and Technology. Fellow of the UK Japan. Nautical Institute.

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From 1998 to 2010 she worked as Senior Manager and then Director Between 2004 and 2011 she worked in commercial sector organisations of the Audit and Risk Management Department at Deloitte and Touche CIS. and from 2009 to 2011 was engaged in teaching at the Lomonosov In 2010 she was appointed as Director of Governance, Risk Management Moscow State University. In 2011 she started work as Assistant to the Head and Compliance at PricewaterhouseCoopers Russia. Between 2016 and 2018 of the Federal Agency for State Property Management, later becoming she served as Director of Business Consulting at Pricewaterhouse-Coopers the Head of its Department of Social and Cultural Sphere Organizations Tax and Advisory (Kazakhstan). Since 2018 she has been heading the Business and Foreign Property and later the Head of Sectoral Organizations Consulting Department of ANO «Analytical Center under the Government and Foreign Property. In January 2015she was appointed Adviser of the Russian Federation». to the Minister of Economic Development of the Russian Federation.In April 2015 she was appointed Director of the Corporate Governance Department Lyubov Nisenboym was elected to the PAO Sovcomflot Board of Directors of the Ministry of Economic Development. In July 2018 she became Assistant in 2019. At present she also serves of the Boards of Directors of AO MASH, to, and in December 2018, Deputy of the Minister of Economic Development. AO FGK, PAO GTLK and AO TransTeleCom Company. Oksana Tarasenko was first elected to the PAO Sovcomflot Board 1 Lyubov Nisenboym of Directors in 2018 . At present she also serves on the Supervisory Oksana Tarasenko Member of the PAO Sovcomflot Councils of Russian Agricultural Bank, VTB Bank, National Technology Member of the PAO Sovcomflot Board of Directors Initiative (NTI). She is a Member of the Boards of Directors of RUSNANOand Board of Directors Born in 1975. the Management Company RUSNANO, the Management Company Born in 1983. Education: Russian State of Innovative scientific and technological centre of Lomonosov Moscow Education: Lomonosov Moscow Humanitarian University; State University ‘Vorobyovy Hills’, AO RVK, AO Russian Hippodromes, State University, specialising Kellogg School of Business Council Member of the Skolkovo Foundation, and of the Charity Foundation in Jurisprudence; Lomonosov at Northwestern University Moscow State University, field for the Reconstruction of the New Jerusalem Monastery. (U.S.), Master of Business of studies: Management. Administration. Academic degree: Candidate of Juridical Sciences.

In 2005 he held the position of Senior Auditor in Oil and Gas Sector at Ernst & Young. From 2007 to 2012 he worked in management positions in analytical departments within corporate investment units of Alfa-Bank and Unicredit. During 2012-2015 he headed the Russian and East European At the beginning of his career he worked as Engineering Officer on vessels oil and gas sector analysis division at OOO Morgan Stanley Bank as its Vice of the Amur River Shipping Company and then Sakhalin Shipping Company. President, Company and Market Research. From September 2015 to March From1994 to 2003 he was responsible for technical operation of the fleet 2018 he headed the Fuel and Energy Analytical Centre at the Russian in Sovcomflot Group divisions. In 2003 he became Technical Director Energy Agency of the Russian Ministry of Energy, which conducts analysis, of OAO Volga Shipping Company. In 2006 he headed OAO Volga-Baltic prepares materials and provides information support for the key areas Company. In 2008 he was appointed Vice President of Fleet Operations of the Ministry’s activities. In March 2018 he was appointed Deputy Minister at the Novorossiysk Shipping Company (OAO Novoship, SCF Group), of Energy of the Russian Federation. and in a year he became President of the Company and a member of its Board of Directors. In 2012, he took the position of Executive Vice President Pavel Sorokin has been a member of the PAO Sovcomflot Board of Directors and Chief Technical Officer of PAO Sovcomflot. Pavel Sorokin since 2019. Member of the PAO Sovcomflot In 2019 Igor Tonkovidov joined the PAO Sovcomflot Board of Directors, Board of Directors Born in 1985. becoming Chief Executive Officer and President of the Company. He is also a member of the Board of Directors of AO United Shipbuilding Company Education: Plekhanov Russian Igor Tonkovidov Academy of Economics, and a member of the Supervisory Board of the Russian Register of Shipping. Member of the PAO Sovcomflot specialising in World Economy; Board of Directors University of London, degree Born in 1964. in Finance and Financial Law. Education: Odessa Institute of Marine Engineers, specialising as Mechanical Engineer; University of London (U.K.), Master’s degree in Financial Management; INSEAD Business School (France), AVIRA programme for top managers.

1. On 26 June 2019, Oksana Tarasenko left the Board of Directors and was elected Member of the Board of Directors again at the Extraordinary General Meeting of Shareholders on 23 September 2019.

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After receiving higher maritime education he served as fourth, third, then During 1989-1991 he was a People’s Deputy of the USSR and headed the Russian second officer on ships operated by the Baltic Shipping Company. In 1993 Federation Committee for Youth Affairs until 1996. Between 1996 and 2007 he moved to onshore work, becoming Lead Consulting Engineer and then he worked in the Ministry of Economic Development and Trade of the Russian Head of the Commercial Center at Kvant Production Association. Between Federation as Department Head, Deputy Minister, State Secretary. From 2007 1996 and 2006 he held various positions in the Department of Expenditure to 2010 he was Managing Director and Chairman of the Board of Directors Control in the National Economy at the Accounts Chamber of the Russian of ZAO Troika-Dialogue Investment Company, where he headed the investment Federation. During 2008-2009 he was Senior Vice-President of OAO United banking operations. In December 2010 he was appointed Deputy Mayor Shipbuilding Corporation. In 2009 he was appointed as Vice-President – of Moscow in the Moscow Government for Economic Policy, responsible Head of Internal Audit Department at OAO Sovcomflot. From 2012 to 2018 for overseeing budget preparation, government procurement, industrial policy he was a member of the Company’s Executive Board. In 2012 he headed and support for entrepreneurship, was involved in trade and service market the Novorossiysk Shipping Company (OAO Novoship, SCF Group) and was regulation. In 2013 he became Rector of SKOLKOVO Business School; since 2016 elected to its Board of Directors. he has been President of Moscow Management school SKOLKOVO.

Yury Tsvetkov In August 2018 Yury Tsvetkov was appointed Deputy Minister of Transport Andrey Sharonov joined the Board of Directors of PAO Sovcomflot in 2014 Andrey Sharonov Member of the PAO Sovcomflot of the Russian Federation - Head of the Federal Agency for Maritime as an independent director. At present he is also Chairman of the Board Member of the PAO Sovcomflot Board of Directors and River Transport. Since 2019 he has been Deputy Minister of Transport of Directors of OOO Managing Company NefteTransService and serves Board of Directors (independent Born in 1965. of the Russian Federation. He joined the Board of Directors of PAO on the Boards of Directors of PAO PhosAgro, AO Medicine and EN+ GROUP PLC. director) Education: Admiral Makarov Sovcomflot in 2019. At present he is also a member of the Boards Born in 1964. Leningrad Higher Maritime of Directors of the International Chamber of Shipping and PAO Novorossiysk Education: Ufa Aviation Engineering School, specialising Commercial Sea Port. Institute, specialising in Maritime Navigation; in Aviation Instrument Making; Academy of National Economy Russian Academy of Civil under the Government Service under the President of the Russian Federation, of the Russian Federation, professional retraining specialising in Jurisprudence. programmes «Enterprise Academic degree: Candidate Economics and Management» of Sociological Sciences. leading to Master of Management and “Economics and Public Finance”; Maastricht School of Management (the Netherlands); Columbia Business School (USA).

The Chairman and members of the Board of Directors did not own shares in PAO Sovcom-flot during the reporting period. No transactions for the acquisition or disposal of Company shares were made by the Board of Directors members listed above.

Since 2006 PAO Sovcomflot has taken out liability insurance for members Mr Chammah held various management positions with Morgan Stanley of the Board of Directors. Investment Bank from 1993. In 2010 he was appointed as Chairman and Chief Executive Officer of Morgan Stanley International. He retired as Company Chairman in 2012. At present he is Partner at Chammah & Partners. 4.3.2 ACTIVITIES OF THE BOARD OF DIRECTORS IN 2019 Walid Chammah has been an independent member of the PAO Sovcomflot Given the strategic nature of the Board of Directors’ activities, meetings The procedure Board of Directors since 2015. At present he is also a board member of the Board of Directors are held on a scheduled basis. An annual for convening and holding of the American University in Beirut, a member of the British-American schedule of meetings is adopted at the first meeting following the election meetings of the Board Business Council, an advisory board member at HEC Montreal, Advisor of the Board of Directors. The schedule includes matters that require regu- of Directors is determined to Signa Holding GmbH, and Director of Augmenta Capital. lar consideration according to statutory and shareholder’s requirements. by the Regulations The Board of Directors also considers other matters at its meetings on the Board of Directors. according to the requirements of the Company’s Charter and/or the law. The work of the Board of Directors is performed Walid Chammah In 2019 the PAO Sovcomflot Board of Directors convened 11 times (including in accordance Member of the PAO Sovcomflot five meetings through joint attendance and six through absentee voting)1. with its competence, Board of Directors (independent director) as determined Born in 1954. under the Federal Law Education: American University on Joint-Stock Companies in Beirut, Bachelor of Business and the PAO Sovcomflot Administration; American Charter. Graduate School of International Management, Master of International Management. 1. Date of the meeting and number of the minutes: 29 January 2019, No. 178 (absentee voting); 26 February 2019, No. 179; 11 April 2019, No. 180; 29 April 2019, No. 181 (absentee voting); 23 May 2019, No. 182; 23 July 2019, No. 183 (absentee voting); 24 September 2019, No. 184; 31 October 2019, No. 185 (absentee voting); 12 November 2019, No. 186 (absentee voting); 10 December 2019, No. 187; 30 December 2019, No. 188 (absentee voting).

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Number of Board of Directors meetings, 2017-2019 • Supervision over the activities of PAO Sovcomflot executive bodies, including approval of performance targets and the results of their attainment by the executive bodies for the reporting period 8 and for 2018; • Consideration of issues related to compliance with Instructions issued 7 by the President of the Russian Federation and the Government of the Russian Federation; 6 • Review of internal audit reports and approval of internal audit plans on a semiannual basis, consideration of the results of an external 5 assessment of the internal audit function; • Approval of internal documents, including Regulations 4 on the Compensation of Personnel, and updating of internal documents relating to non-core assets and procurement procedures according 3 to statutory and shareholder’s requirements; • Supporting the organisational activities of the Board of Directors 2 and establishing Committees of the Board of Directors.

1 Information on the most significant issues was disclosed by PAO Sovcomflot as material facts. 0 201 201 2019 The report on the work of the Board of Directors and its committees in 2019 is planned to be reviewed at the meeting of the PAO Sovcomflot Joint attendance Absentee voting Board of Directors to be held in April 2020 in person. The self-assessment conducted by the Board of Directors and its committees determined that the performance of the Company’s Board of Directs and its committees Number of issues considered by the Board of Directors, 2017-2019 corresponded to the needs for the Company’s development.

50 Participation of PAO Sovcomflot directors in Board of Directors meetings in 2019 Director Participation in meetings Total number 40 of meetings Members of the Board of Directors throughout 2019 Ilya Klebanov 11 11 30 Alexey Klyavin 11 11 David Moorhouse 11 11

20 Sergey Frank 11 11 Walid Chammah 10 11 Andrey Sharonov 11 11

10 Members of the Board of Directors until 26 June 2019 Viktor Olersky 5 5

0 Ivan Glumov 5 5 201 201 2019 Oksana Tarasenko 5 5

In 2019 the PAO Sovcomflot Board of Directors considered 44 issues Members of the Board of Directors since 26 June 2019 in the following main areas: Alexander Abramov 6 6 Lyubov Nisenboym 6 6 At the first meeting • Strategic management of Sovcomflot Group, including results following its formation, of implementation of the long-term development programme in 2019, Pavel Sorokin 6 6 the Board of Directors, approval of the updated PAO Sovcomflot strategy up to 2025, review Yury Tsvetkov 6 6 of quarterly reports on the implementation of the long-term development as a rule, elects Members of the Board of Directors since 23 September 2019 a Chairman, whose programme, and issues related to the updating of the long-term develop- powers are defined ment strategy up to 2025; Oksana Tarasenko 5 5 in the Regulations • Notification of significant issues in PAO Sovcomflot operations; Igor Tonkovidov 5 5 on the PAO Sovcomflot • Preparation of PAO Sovcomflot for entering public capital markets, Board of Directors, including amendments to the decision on the additional issue and forms its of securities and the prospectus of ordinary registered uncertified shares committees. of the Company and amendment of the PAO Sovcomflot Charter; • Approval of the financial plan (budget) of PAO Sovcomflot and Sovcomflot Group, summarizing performance for the reporting period, preparations for holding the Annual General Meeting of Shareholders, preliminary consideration of issues before submitting them to the General Meeting of Shareholders (for a shareholder decision);

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The Regulations on the PAO Sovcomflot Board of Directors stipulate that Name Composition Competencies Board of Directors meetings shall be held in joint presence of the Board HR and 1. Walid Chammah Developing and regularly reviewing the Company’s policy on compensation of members of the Board members. By a decision of the Chairman of the Board of Directors, decisions Compensation (independent of Directors, members of the collegiate executive body, the person acting as the sole executive body of the Board of Directors, depending of the significance of agenda items, Committee director) Chairman of the Company, as well as other key employees of the Company, including development of parameters may be adopted by absentee voting. (also performs 2. David Moor-house for short-term and long-term motivation of members of the executive bodies, and overseeing functions 3. Andrey Sharonov the introduction and implementation of the abovementioned policy. of a nominations (independent Determining and adjusting the PAO Sovcomflot em-ployment policy. Decisions on issues that require preliminary assessment by the relevant committee) director) Determining the amount of compensation for members of the Company’s Board of Directors and Auditing committee of the Board of Directors are adopted taking into account Commission. Determining the amount of compensation for members of the collegiate executive body and the person recommendations of such committee. acting as the sole executive body of the Company. Determining the terms and conditions of agreements with members of the collegiate executive body and the person acting as the sole executive body of the Company. Information about members of the Board of Directors and its activities Electing executive bodies of the Company. is disclosed by PAO Sovcomflot on its official website in the Corporate Carrying out a preliminary assessment of the work of the Company’s collegiate executive body governance section according to statutory requirements, provisions and the person acting as the sole executive body of the Company based on annual results in accordance with the compensation policy. of the Corporate Governance Code recommended by the Bank of Russia, Developing conditions for early termination of employment contracts with members of the collegiate and the Company’s Information Policy. executive body and the person acting as the sole executive body of the Company, including all material undertakings of the Company and the conditions upon which they are given. Elaborating recommendations to the Board of Directors for determining the amount of compensation and principles of awarding bonuses to the Company’s Corporate Secretary, carrying out a preliminary assessment of the work of the Company’s Corporate Secretary based on annual results. Conducting a detailed formalised self-assessment or external assessment of the performance of the Board of Directors and its members and of the committees of the Board of Directors on an annual basis, determining priority areas for improvement of the work of the Board of Directors, including with a view 4.3.3 ACTIVITIES OF THE BOARD OF DIRECTORS COMMITTEES to reinforce the Board of Directors. IN 2019 Maintaining interaction with shareholders, which should not be limited to major shareholders, with a view to elaborating recommendations to shareholders on voting for election of candidates to the Company’s Board of Directors. Composition and competencies of committees of the Board of Directors as at 31 December 2019 Planning personnel appointments taking into account the need to ensure continuity for members of the collegiate executive body and the person acting as the sole executive body of the Company, Name Composition Competencies preparing recommendations to the Board of Directors regarding candidates for the position of Corporate Secretary, members of the collegiate executive body, the person acting as the sole exec-utive body Strategy 1. Yury Tsvetkov Analysis of proposals and development of recommendations for the Board of Directors on priority of the Company and other key managers of the Company. Committee - Chairman areas of activity of Sovcomflot Group, including long-term plans and development strategies Elaborating and submitting recommendations (opinions) to the Board of Directors on other issues 2. Alexander and programmes. in accordance with instructions from the Board of Directors. Abramov Preliminary consideration and preparation of recommendations on compiling and adjusting 3. Alexey Klyavin the Sovcomflot Group budget and on drafting PAO Sovcomflot plans for financial and economic Committee 1. Ilya Klebanov Considering and approving the innovative development policy and programmes of Sovcomflot Group. (independent activities over the long term and for the current period. for Innovative - Chairman Considering and approving R&D projects. director) Elaborating proposals and recommendations on key performance indicators and the governance Development 2. Alexey Klyavin Assessing state-of-the-art innovative technologies to be implemented in Sovcomflot Group. 4. Lyubov system for Sovcomflot Group financial activities. and Technical (independent Elaborating the SCF Group’s technical policy. Nissenboym Elaborating proposals and recommendations on investment policy, increasing the capitalisation Policy director) Elaborating the SCF Group’s innovative development policy. 5. Pavel Sorokin of Sovcomflot Group, and working with Sovcomflot Group securities. 3. David Moorhouse Improving the safety and service quality management system in Sovcomflot Group. 6. Oksana Tarasenko Elaborating proposals and recommendations on the PAO Sovcomflot dividend policy. 4. Igor Tonkovidov Technical expert appraisals of investment projects. 7. Andrey Sharonov 5. Yury Tsvetkov (inde-pendent director) Audit Committee 1. Andrey Sharonov Control over the completeness, accuracy and reliability of the Company’s financial statements. (independent Evaluation of candidates for the Company’s Auditor with submission of results of such evaluation When considering issues within their competence, the committees director) –Chairman to the Board of Directors as well as preparation of recommendations for the Company’s Board of Directors arrange for a detailed analysis of drafts proposed by management 2. David Moorhouse regarding the candidate for further approval of the Auditor by the General Meeting of Shareholders. 3. Walid Chammah Evaluation of the Company’s financial and economic activities, including assessment of management and the preparation of recommendations for the Board of Directors, thereby (independent and financial reporting. improving the quality of the decision-making process. The committees director) Evaluation of the report of the Company’s Auditor prior to its presentation at the General Meeting operate on the basis of respective regulations approved by the Board of Shareholders. Control over the reliability and effectiveness of the risk management and internal control system of Directors. and the corporate governance system, including assessment of the efectiveness of the Company’s risk management and internal control procedures and corporate governance practices and preparation of recommendations for their improvement; analysis and evaluation of compliance with internal documents Report on the work of the Strategy Committee on risk management and internal control and management of conflicts of interest. Review of the regulations on internal audit and the work plan of the internal audit department. Review of issues relating to appointment (dismissal) of the head of the internal audit department During the reporting period two compositions of the Committee were and amount of his/her compensation. in operation (elected by the PAO Sovcomflot Board of Directors decision Assessment of the effectiveness of the internal audit function and preparation of recommendations dated 20 July 2018 (Minutes No. 173) and elected by the PAO Sovcomflot for the Company’s Board of Directors on control over activities and functional management of the Company’s internal audit department. Board of Directors decision dated 24 September 2019 (Minutes No. 184)). Ensuring the independence and objectivity of the internal and external audit functions. Ensuring effective interaction between the Company’s internal audit department and external auditors. In 2109 the Committee considered and prepared recommendations Elaborating recommendations for selecting an independent appraiser and conducting a valuation of proper-ty in cases provided for by current legislation. for the Board of Directors based on the results of implementation Assessment of the effectiveness of the system for reporting potential misconduct by the Company’s of the long-term development programme of PAO Sovcomflot, preliminarily employees (including illegal use of insider and confidential in-formation) and third persons and other considered issues related to updating of the PAO Sovcomflot strategy up violations within the Company’s activity, as well as control over implementation of measures adopted by the Company’s executive management as part of this system. to 2025, and also reviewed the financial plan (budget) for 2020 and forecast for 2021-2022 on a preliminary basis1.

1. Date of the meeting and number of the minutes: 11 April 2019, minutes unnumbered; 9 December 2019, minutes unnumbered. 2. Date of the meeting and number of the minutes: 28 January 2019, minutes unnumbered; 26 February 2019, minutes unnumbered; 13 March 2019, minutes unnumbered; 23 May 2019, minutes unnumbered; 14 November 2019, minutes unnumbered; 20 November 2019, minutes unnumbered; 10 December 2019, minutes unnumbered.

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During the reporting period Strategy Committee members held working meetings with PAO Sovcomflot’s management on matters related 4.4. Chief Executive Officer to updating the long-term development programme of PAO Sovcomflot up to 2025. and Executive Board of PAO Report on the work of the Audit Committee Sovcomflot During the reporting period two compositions of the Committee were in operation (elected by the PAO Sovcomflot Board of Directors decision dated 20 July 2018 (Minutes No. 173) and elected by the PAO Sovcomflot Board of Directors decision dated 24 September 2019 (Minutes No. 184)).

In 2109 the Committee considered and prepared recommendations The executive management bodies of PAO Sovcomot for the Board of Directors for selecting an auditor and determining the amount of the fee to be paid to the auditor by PAO Sovcomflot, reviewed manage the Company's day-to-day-activities internal audit activity reports and work plans on a semi-annual basis, and also reviewed the results of an external assessment of internal audit and external audit report for 20181, the audit plan for 2018 and interim 2019 audit results.

During the reporting period Audit Committee members held regular working meetings with the auditors and the financial and accounting departments of PAO Sovcomflot. Sole executive body Collegiate executive body

Report on the work of the HR and Compensation Committee

During the reporting period two compositions of the Committee were in operation (elected by the PAO Sovcomflot Board of Directors decision Chief Executive O cer Executive Board dated 20 July 2018 (Minutes No. 173) and elected by the PAO Sovcomflot Board of Directors decision dated 24 September 2019 (Minutes No. 184)). Sergey Frank was elected Chief Executive Officer on 4 October 2004 In 2019 the Committee prepared recommendations for the Board by an Extraordinary General Meeting of Shareholders of PAO Sovcomflot. of Directors2 regarding approval of performance indicators and the results The powers of Sergey Frank as PAO Sovcom-flot Chief Executive Officer of their attainment by the executive bodies in implementing the long-term were extended for five years by a resolution of an Extraordinary General development programme of PAO Sovcomflot, and also considered amending Meeting of Shareholders (Instructions No. 432-r of the Federal Agency the Company’s internal documents related to employee compensation. for State Property Management dated 19 June 2015). By a resolution of an Extraordinary General Meeting of Shareholders (Instructions No. 592-r During the reporting period members of the HR and Compensation of the Federal Agency for State Property Management dated 23 September Committee held regular meetings on the above issues with members 2019) the powers of Sergey Frank as PAO Sovcomflot Chief Executive Officer of the PAO Sovcomflot collegiate executive body. were terminated earlier and Igor Tonkovidov was appointed Chief Executive Officer of PAO Sovcomflot for a term of three years. Report on the work of the Committee for Innovative Development and Technical Policy The rights and obligations of the Chief Executive Officer and members of the Executive Board on managing the current activities of PAO Sovcomflot During the reporting period two compositions of the Committee were are determined by Federal Law No. 208-FZ “On Joint-Stock Companies” dated in operation (elected by the PAO Sovcomflot Board of Directors decision 26 December 1995, other legal acts of the Russian Federation, the Charter, dated 20 July 2018 (Minutes No. 173) and elected by the PAO Sovcomflot Regulations on the Management Bodies and internal regulations of PAO Board of Directors decision dated 24 September 2019 (Minutes No. 184)). Sovcomflot, as well as contracts determining the rights and obligations of the Chief Executive Officer and members of the Executive Board In 2019 the Committee reviewed the Sovcomflot Group’s activities to reduce concluded by each of them with PAO Sovcomflot. carbon dioxide emissions3. The Chief Executive Officer exercises the functions of Chairman During the reporting period members of the Committee for Innovative of the Executive Board, acts without a power of attorney on behalf of PAO Development and Technical Policy held regular working meetings Sovcomflot, and approves internal regulations governing production, with corresponding PAO Sovcomflot structural divisions on issues relating technological, financial, accounting, business, HR, and occupational health to the implementation of the innovative development programme. and safety issues.

The Executive Board operates within the limits of its competence determined by the Charter and ensures the implementation of resolutions

1. of General Meetings of Shareholders and Board of Directors of PAO Date of the meeting and number of the minutes: 28 January 2019, minutes unnumbered; 26 February 2019, minutes unnumbered; 13 March 2019, minutes unnumbered; 23 May 2019, minutes unnumbered; 14 November 2019, minutes unnumbered; 20 November 2019, minutes Sovcomflot. unnumbered; 10 December 2019, minutes unnumbered. 2. Date of the meeting and number of the minutes: 26 February 2019, minutes unnumbered; 10 April 2019, minutes unnumbered; 23 May 2019, minutes unnumbered; 22 October 2019, minutes unnumbered; 10 December 2019, minutes unnumbered. 3. Date of the meeting and number of the minutes: 10 December 2019, minutes unnumbered.

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Information on members of the PAO Sovcomflot Executive Board Marios Christou Orphanos Managing Director of Sovcomflot (Cyprus) Limited Born in 1972 Chairman of the Executive Board Education: University of Manchester, degree in Accounting and Finance; Institute of Chartered Accountants in England and Wales. Igor Tonkovidov 24 years of experience in the industry, 19 years in SCF Group Chief Executive Officer of PAO Sovcomflot Born in 1964 Education: Odessa Institute of Marine Engineers, specialising as Mechanical Engineer; University of London (U.K.), Master’s degree in Financial Management; INSEAD Business School (France), AVIRA programme for top managers. 33 years of experience in the industry, 20 years in SCF Group

Alexey Ostapenko Vice President and Administrative Director of PAO Sovcomflot Born in 1972 Education: Moscow State Institute of International Relations of the Russian Ministry of Foreign Affairs, specialising in Jurisprudence; Russian Government Finance Academy, specialising in Finance and Credit; London Metropolitan University, degree in Maritime Law. 22 years of experience in the industry, 17 years in SCF Group Executive Board Members

Evgeny Ambrosov Senior Executive Vice-President of PAO Sovcomflot Born in 1957 Education: Admiral Nevelskoy Far Eastern Higher Marine Engineering College, Sergey Popravko specialising in Maritime Navigation. Executive Vice President and Chief Operating Officer of PAO Sovcomflot 40 years of experience in the industry, 13 years in SCF Group Born in 1961 Education: Admiral Nevelskoy Far Eastern Higher Marine Engineering College, specialising in Maritime Navigation; World Maritime University (Sweden), degree in Shipping Company Management; Academy of the National Economy, DBA (Doctor of Business Administration); Swiss Business School (Zurich), DBA. 35 years of experience in the industry, 14 years in SCF Group

Vladimir Emelyanov Vice President and Head of Strategic Planning and Development of PAO Sovcomflot Born in 1969 Education: Moscow Finance Institute, specialising in International Economic Relations; Joint programme of the Madrid School of Business (Spain) and the Bauer College of Business of the University of Houston (USA), MBA. 8 years of experience in the industry and in SCF Group The Chief Executive Officer and members of the Executive Board of PAO Sovcomflot did not own shares in the Company during the reporting period, nor made any transactions for the acquisition or disposal of Company shares.

Based on a decision of the Executive Board, the following committees have Nikolay Kolesnikov been established and operate at Sovcomflot to preliminarily consider issues Executive Vice President and Chief Financial Officer of PAO Sovcomflot and prepare recommendations for the Executive Board and Chief Executive Born in 1963 Officer: Education: Moscow Finance Institute, specialising in International Economic Relations; Instituto de Empresa (Madrid, Spain), International Executive MBA. • Committee for Maritime Safety, Environmental Protection, Quality 22 years of experience in the industry, 14 years in SCF Group and New Technologies; • Finance Committee; • Investment and Asset Management Committee; • Freight Committee; • Committee for Corporate Identity and Public Relations; • Committee for Social and HR Policy and Corporate Ethics; • Committee for Information Technologies; Callum Ludgate Managing Director, Member of the Board of Directors of Sovcomflot (UK) Ltd. • Insurance Committee; Born in 1969 • Committee for Technical Policy – Technical Council. Education: Southampton University. 26 years of experience in the industry and in SCF Group

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Number of Executive Board meetings, 2017-2019 4.5. Auditing Commission 60 The competence and operating procedures of the Auditing Commission The Auditing Commission 2 0 are determined by the Regulations on the Auditing Commission1 approved exercises control 50 by the PAO Sovcomflot General Meeting of Shareholders (Instructions No. over the financial 519-r of the Federal Agency for State Property Management dated 30 June and business activities 40 2016). of PAO Sovcomflot, as well as its divisions During the reporting period, the Auditing Commission operated and services. 30 in the composition elected by the Annual General Meeting of Shareholders on 29 June 2018 (Instructions No. 449-r of the Federal Agency for State Property Management dated 29 June 2018). At the Annual General Meeting 20 of Shareholders held on 26 June 2019 (Instructions No. 373-r of the Federal Agency for State Property Management dated 26 June 2019) the Auditing Commission was elected in the same composition. 10 1 Composition of the Auditing Commission of PAO Sovcomflot as at 31 0 201 201 2019 December 2019 Joint attendance Absentee voting Chairman of the Auditing Commission Mikhail Kuznetsov Born in 1979 Number of issues considered by the Executive Board, 2017-2019 Education: higher OOO Topcompetence, Chief Executive Officer; OOO Corporate Development Centre, 200 Chief Executive Officer

Members of the Auditing Commission: 1 150 1 Ivan Bezmenov 10 Born in 1980 Education: higher Russian Ministry of Economic Development, Director of the Corporate Governance Department 100

Dmitry Vladimirov Born in 1989 50 Education: higher Federal Agency for State Property Management, Deputy Head of the Department of Property Relations and Privatisation of Major Organisations

0 201 201 2019 Zakhary Dzhioev Born in 1977 Education: higher The Executive Board adopted decisions on the following main areas Deputy Head of the Federal Agency for Maritime and River Transport A total of of activity of PAO Sovcom-flot at its meetings in 2019: • Implementing the development strategy of Sovcomflot Group; • Renewing the Sovcomflot Group fleet and expanding the Group’s participation in industrial projects; • Improving the corporate and organisational structure of the Group; 156 • Expanding the social guarantees and benefit packages for fleet ISSUES and onshore personnel; • Charitable and sponsorship programmes of PAO Sovcomflot were considered and Sovcomflot Group; • Approval of internal documents falling within the competence at the Executive Board of the Executive Board. meetings in 2019.

One out of the 51 meetings of the Executive Board was held by absentee voting. 1. More detailed information about these regulations can be found on the Company’s website in the Corporate governance section.

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During the reporting period members of the Auditing Commission did not own shares in PAO Sovcomflot. 4.6. Compensation

In 2019, compensation was paid to members of the Auditing Commission other than state officials in accordance with the Regulations on the Payment system for members of Compensation and the Reimbursement of Expenses to Members of the PAO Sovcomflot Auditing Commission approved by Instructions No. 519-r of the Federal Agency for State Property Management dated 30 of management bodies June 2016 and on the basis of Instructions No. 373-r of the Federal Agency for State Property Management dated 26 June 2019. 4.6.1 COMPENSATION OF THE BOARD OF DIRECTORS MEMBERS IN 2019 Compensation paid to the Auditing Commission members in 2019

Indicator Amount, RUB thousand In accordance with the Regulations on the Payment of Compensation and the Reimbursement of Expenses to Members of the PAO Sovcomflot Board Compensation for participation in the body exercising control 536 over the issuer’s financial and economic activity of Directors (approved by Instructions No. 1158-r of the Federal Agency for State Property Management dated 30 June 2012, as amended by Instructions No. Salary - 478-r of the Federal Agency for State Property Management dated 29 June Bonuses - 2015 and Instructions No. 519-r of the Federal Agency for State Property Commissions - Management dated 30 June 2016), and also according to Instructions No. 373-r of the Federal Agency for State Property Management dated 26 June Benefits - 2019 and Instructions No. 592-r of the Federal Agency for State Property Reimbursement for expenses - Management dated 23 September 2019, PAO Sovcomflot reimburses Board Other types of compensation - of Directors members for actual documented expenses incurred whilst TOTAL 536 exercising their duties as Board of Directors members.

In accordance with recommendations of the Russian Ministry of Economic All recommendations of the PAO Sovcomflot Auditing Commission based Development and the Regulations on the Payment of Compensation on the audit of financial and economic activities were implemented during and the Reimbursement of Expenses to Members of the PAO Sovcomflot the reporting period. Board of Directors, the directors of PAO Sovcomflot are paid compensation during their term of office for exercising their duties as Board of Directors members, with basic compensation set at RUB 3,200,000 a year. Compensation in the following amounts is paid each year in addition to basic compensation for the directors serving as Chairman of the Board of Directors, Chairman of a Committee of the Board of Directors, and Member of a Committee of the PAO Sovcomflot Board of Directors: • For exercising the duties of the Chairman of the Board of Directors, in the amount of the basic compensation multiplied by a coefficient of 2.3. • For exercising the duties of the Chairman of a Committee of the Board of Directors, in the amount of the basic compensation multiplied by a coefficient of 0.8. • For exercising the duties of a Member of a Committee of the Board of Directors, in the amount of the basic compensation multiplied by a coefficient of 0.6.

Compensation amounts paid on top of the basic compensation are paid regardless of the number of PAO Sovcomflot Board of Directors Committees on which the member of the Board of Directors works.

Compensation is not paid to Board of Directors members who are employees of PAO Sovcom-flotor state officials and to other individuals who are not entitled under Russian law to compensation.

In accordance with the above Regulations on the Payment of Compensation and the Reimbursement of Expenses to Members of the PAO Sovcomflot Board of Directors as well as Instructions No. 373-r of the Federal Agency for State Property Management dated 26 June 2019 and Instructions No. 592-r of the Federal Agency for State Property Management dated 23 September 2019, PAO Sovcomflot Board of Directors members were paid compensation and reimbursement for expenses in the amount set forth in internal documents of PAO Sovcomflot.

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Compensation of the Board of Directors members in 2019 The total duration of the LTMP is five years with remunerations to be paid in 2018, 2019 and 2020. Indicator Amount, RUB thousand In accordance with the LTMP, employees are entitled to receive remuneration Compensation for participation in a management body 43,601 upon the attainment of target key performance indicators (LTMP KPIs) Salary - defined in the Company’s Long-Term Development Programme. If LTMP KPI Bonuses - targets are not attained, entitlements accrued in accordance with the LTMP Commissions - terms and conditions may be cancelled.

Benefits - Target KPIs determining the contribution of Executive Board members Reimbursement for expenses 5,342 to implementing the PAO Sovcomflot LDP for the 2019 financial year were Other types of compensation - approved by the Board of Directors decision dated 11 December 2018 (Minutes No. 177). TOTAL 48,943 Compensation of Executive Board members and the Chief Executive Officer in 20191

4.6.2 COMPENSATION OF EXECUTIVE BOARD MEMBERS Indicator Amount, RUB AND THE CHIEF EXECUTIVE OFFICER IN 2019 thousand Salary 207,917 The Personnel Compensation Policy, as an integral part of the Company’s Bonuses 310,238 HR management system, is aimed at preserving, enhancing, developing Commissions - and unlocking the Company’s staff potential, increasing labour productivity and loyalty of employees, and ultimately achieving the objectives defined Benefits - by the Company’s business strategy. Reimbursement for expenses - Other types of compensation - The compensation of the PAO Sovcomflot Executive Board members consists of: TOTAL 518,155 • A fixed component (monthly salary); • A variable component (compensation based on the Company’s annual Target KPIs determining the contribution of Executive Board members performance). to implementing the PAO Sovcomflot LDP for the 2020 financial year were approved by the Board of Directors decision dated 10 December 2019 The size of a monthly salary is established by the employment contracts (Minutes No. 187). concluded at the time of employment.

Compensation based on the Company’s annual performance is directly linked to the attainment of a number of key performance indicators defined 1. According to the accounting (financial) statements of PAO Sovcomflot prepared under RAS. according to the Long-Term Development Programme. The payment of annual bonuses acts as an incentive to attain the strategic goals of PAO Sovcomflot, and also serves to attract and retain the best industry specialists.

Starting from 1 January 2015, members of the Executive Board and some of seagoing and on-shore personnel are participating in the Long-Term Motivation Programme (LTMP) approved by the Board of Directors.

The Company’s LTMP was developed in accordance with best industry practices in incentive compensation and enables the Company to attract and retain high-profile fleet management professionals, including masters and chief engineering officers who have unique competencies in ensuring a safe, reliable and quality transportation of energy resources and servicing of offshore oil & gas projects as well as an extensive experience of work on high-tech vessels in difficult climate and weather conditions.

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4.7. Stakeholder 4.8. Risk management communications system and internal control

The stakeholders of Sovcomflot Group The main principles and priorities for stakeholder are institutions, communications are enshrined in the Code of Corporate organisations, or individuals 1 4.8.1. RISK MANAGEMENT SYSTEM whose interests Governance . are related to the activities Sovcomflot Group pays particular attention to risk management In 2019 Sovcomflot Group actively communicated with its stakeholders, of the Group, and which issues. Sovcomflot Group management and employees are responsible performing work in parallel aimed at expanding and developing existing in turn have an impact for establishing and operating the risk management system at all platforms and mechanisms for joint dialogue. The key stakeholder groups on its performance. management levels. of the Company as well as channels and formats of communication with them are set out in the table below. Main functions and tasks of key participants in the risk management system

Mechanisms for stakeholder communications

Stakeholder Mechanisms for communications Board of Directors Executive Board Shareholder • Shareholder General meetings of shareholders – Determining general principles and – Approving the regulatory and methodological and investors • Investors Presentations, conference calls, meetings between management and the investment community, analyst and investor days approaches to risk management framework of the RMS • Banks and creditors Publication of press releases and other materials as part of the disclosure of information on Sovcomflot Group activities - Reviewing key risks and methods - Monitoring the implementation of risk Disclosure of information and reporting to manage these risks management measures - Approving risk appetite (preferred risk) - Approving the corporate risk register, Business partners • Group customers Meetings with clients, including industry conferences and seminars Conducting research among consumers and methodology for its measurement risk map and risk management measures • Suppliers and contractors Development of tender procedures for the procurement of goods and services Audit of suppliers in order to confirm their good faith and solvency Implementation of anti-corruption procedures Publication of market overviews Employees • Group employees Meetings with employees held by management of all levels and HR department Coordinator representatives (Strategic Planning and Development Directorate) Notifying employees through an intra-corporate communications system Material and non-material incentive programmes – Coordinating risk management activities Development of the training and skill improvement system for seagoing - Developing the regulatory and methodological framework and onshore personnel of the RMS Use of feedback tools, employee surveys Consideration of submissions and complaints - Consolidating information on risks - Preparing reports on risks State • Russian legislative Participating in the activities of working groups and expert councils established and executive state under Russian state authorities authorities Society • Academic institu-tions Charitable assistance to educational and health care institutions and veteran Internal audit Management/risk owners • Health care institutions organisations – Evaluating the e ectiveness of the risk /managers of structural divisions Targeted training programmes for cadets of maritime universities management system • Industry veterans Organising internships for cadets on the Company’s vessels – Maintaining and developing the risk manage- • Local population Organising internships for teachers of maritime universities - Preparing reports on evaluation results and ment system Sponsoring sports events and competitions aimed at raising the prestige recommendations for the Audit Committee in the regions where of the maritime profession - Identifying and assessing risks the Company has and the Board of Directors - Implementing risk management activities a footprint Russian and inter- • Industry non-governmental Participation in the activities of working groups and boards of professional non- national profes- organisations governmental organisations sional organisations Implementing joint projects with the maritime community and NGOs • Business associations Supporting local projects and discussing individual issues related • NGOs to the Company’s activities The media • Print publications Regular publications in the media of materials dedicat-ed to important events in the Group’s activities • Electronic media (including Organising interviews with management television, the internet, Press conferences and other events for media representatives and radio) Participation of Group representatives as experts during the preparation of topical subjects on navigation issues in the Arctic region, development trends in various freight market segments, and shipbuilding

PAO Sovcomflot did not receive government support, including subsidies.

1. The new version was approved by the PAO Sovcomflot Board of Directors decision dated 10 November 2015, Minutes No. 149.

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The committees set up by the Executive Board of the Company (Freight KEY RISKS Committee, Investment Committee, Finance Committee, Technical Policy Committee – Technical Council, etc.) also carry out risk management within The Group has created and regularly updates a register of risks that can have their respective competence. a significant impact on its operations. Risks are ranked by priority.

The Audit Committee of the Company’s Board of Directors exercises control A list of key risks in provided in Appendix 2 to this Annual Report. over the reliability and effectiveness of the risk management system, including assessment of the effectiveness of risk management procedures. In addition, the Company is implementing regular and one-time activities designed to prevent or minimise the likelihood of risks materialising. Such Risk management is carried out in accordance with the Regulations activities include maintaining high navigation safety standards, monitoring on the PAO Sovcomflot Risk Management System (the «RMS Regulations»). global freight markets, building and deploying state-of-the-art vessels The document was developed in accordance with the Corporate Governance and renewing the fleet in a timely manner, planning and implementing Code of the Russian Federation1 and Guidelines for the Preparation required environmental measures, monitoring amendments to shipping of Regulations on the Risk Management System2. The RMS Regulations were industry regulations, and improving HR policies. approved by the PAO Sovcomflot Board of Directors in November 20153. The implemented risk management measures together with a proactive The RMS Regulations constitute a fundamental framework defining the tasks response to emerging threats enabled the Group to minimise their impact and objectives of the risk management system, the main principles of its on operations during the reporting period. operation, the structure of the risk management system, the allocation of responsibility between the parties involved and nature of their interaction, and the general approach to the organisation of the risk management 4.8.2. INTERNAL CONTROL system.

Pursuant to the RMS Regulations, the main purpose of the RMS is to create The internal control system is managed by the Company’s governing bodies Sovcomflot Group has conditions for achieving the Company’s strategic and operating objectives (the Board of Directors, executive bodies - the Company’s Executive Board in place an internal control and goals through regular identification, analysis and assessment of risks, and Chief Executive Officer), committees under the Board of Directors, system, which ensures development and implementation of measures to manage risks and maintain committees under the Executive Board (Freight Committee, Investment the effective imple- the risk level within limits acceptable for management and shareholders. Committee, Finance Committee, Committee for Technical Policy - Technical mentation of the Group’s Council, etc.), Vice-Presidents, divisions in charge and the Company’s internal business The report on the PAO Sovcomflot risk management system for 2019 was employees within their competence in accordance with the law and internal processes and is directly 1 submitted for consideration to the management and supervisory bodies documents of the Company. linked with the risk man- of PAO Sovcomflot4. agement system. The efficiency of the internal control system is also bolstered by having In accordance with the RMS Regulations, the Strategic Planning independent directors on the Board of Directors and its committees. and Development Directorate is in charge of coordinating risk management The current Board of Directors has three independent directors. activities. A description of key participants in the risk management system and their main responsibilities is provided in the table above. Effectiveness of the internal control system is assessed by the Auditing Commission and the Internal Audit Department2. Further development and improvement of the risk management system is based on the provisions set out in the COSO Enterprise Management - Integrated Framework, ISO 31000:2018 Risk management - Principles and guidelines, and ISO 31010:2011 Risk management - Risk assessment techniques.

1. 1. For more details see the relevant sections of this Annual Report. Approved by Bank of Russia Letter No. 06-52/2463 dated 10 April 2014. 2. 2. For more details see the relevant sections of this Annual Report. Approved by Russian Government Order No. ISh-P13-4148 dated 24 June 2015. 3. Minutes of the Board of Directors No. 149 dated 13 November 2015. 4. Minutes of the Executive Board No. 33(978) dated 12 September 2019, No. 36(981) dated 26 September 2019 and No. 45(990) dated 28 November 2019. The report on the risk management system for 2018 and 9M 2019 was reviewed at a meeting of the Board of Directors (Minutes No. 189 dated 31 January 2020).

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4.9. Internal and external 4.9.2. EXTERNAL AUDIT In accordance with legislative requirements, PAO Sovcomflot holds an annual The accounting (financial) open tender for selecting an auditor to conduct an independent audit statements of PAO audit of the financial statements of PAO Sovcomflot prepared in accordance Sovcomflot for 2019 with Russian accounting laws and the consolidated financial statements prepared in accordance of PAO Sovcomflot prepared under Federal Law No. 208-FZ “On Consolidated with Russian accounting 4.9.1. INTERNAL AUDIT Fi-nancial Statements” of 27 July 2010. For this purpose a tender commission laws and the consolidated is created and open tender procedures are carried out. financial statements Internal audit helps The PAO Sovcomflot Internal Audit Department (before February 2009: prepared in accordance enhance the Company’s Internal Control Department) created in April 2006 is a standalone structural The tender is open, and the notice of tender and related tender with IFRS were audited management efficiency division of PAO Sovcomflot and operates in accordance with the regulations documentation are published ac-cording to the procedure prescribed by law. by Ernst & Young LLC. and improve its financial on the department. Regulations on the Internal Audit Department of PAO Interested participants meeting Russian statutory requirements for auditors and economic activities Sovcomflot (approved by the Board of Directors decision dated 26 May 2017, are invited to participate. The winner will be the audit firm that receives through a systematic Minutes No. 163), with the amendments and additions approved by the PAO the most points based on an assessment of the bids. If there is a tie, the audit and consistent Sovcomflot Board of Directors on 26 February 2019, Minutes No. 179); firm that was the first to submit a bid will be deemed to be the winner. approach to the analysis and evaluation of the risk The Internal Audit Department reports functionally to the PAO Sovcomflot management system Board of Directors and administratively reports to the PAO Sovcomflot INFORMATION ABOUT THE AUDITOR and internal control Chief Executive Officer (Clause 2.1 of the Regulations on the Internal as well as corporate Audit Department). The Internal Audit Department is led by its head, Full business name: Ernst & Young Limited Liability Company. governance as tools who is appointed and dismissed by order of the PAO Sovcomflot Chief providing reasonable Executive Officer based on a decision of the Board of Directors (Clause 1.4 Record made in the State Register of Legal Entities on 5 December 2002, assurance that of the Regulations on the Internal Au-dit Department). The Internal Audit State Registration Number 1027739707203. the Company’s objectives Department has four employees. will be achieved. Address: 77 Sadovnicheskaya Embankment, bldg. 1, Moscow 115035, Russian The Internal Audit Department operates on the principles of legality, Federation. independence and objectivity, is governed by the legislation of the Russian Federation, International Standards for the Professional Practice of Internal Ernst & Young LLC is a member of Selfregulatory Organization of Auditors Auditing, and internal regulations of Sovcomflot Group, and interacts in its Association “Sodruzhestvo» (SRO AAS) located at 21 Michurinsky Prospect, work with the Audit Committee under the Board of Directors, the Auditing bldg. 4, Moscow 119192. Ernst & Young LLC is included in the control copy Commission and external auditors of PAO Sovcomflot as well as its of the register of auditors and audit organizations, main registration number subsidiaries and affiliates (Clause 5.5. of the Regulations on the Internal 12006020327. Audit Department).

The main tasks and functions of the Internal Audit Department include: • Assessing the efficiency and monitoring the adequacy of the internal control, risk management and corporate governance systems; • Checking the financial, management and other reports for completeness and accuracy; • Checking the effectiveness of control measures and other risk management activities; • Controlling compliance by PAO Sovcomflot with internal documents, procedures and regulations, and their conformity to the current legislation of the Russian Federation; • Putting forward proposals on ways to improve the efficiency of the existing internal control and risk management system, including the correction of identified violations and deficiencies (Sub-clauses 3.2 and 3.3 of the Regulations on the Internal Audit Department).

To increase the quality of the internal audit function, it is subjected to an external assessment on a regular basis, based on a Group management’s decision. An external assessment of the quality of the internal audit function in PAO Sovcomflot was conducted in December 2018 (the results of the external assessment were reviewed by the Board of Directors on 26 February 2019).

PAO «Sovcomflot» 99 5. SHARE CAPITAL The dividend policy is based on maintaining AND PROFIT an optimal balance of interests between PAO Sovcomflot DISTRIBUTION and its shareholder when distributing net profit, and on the need to increase the investment appeal of PAO Sovcomflot and its capitalisation About Strategy Operating Corporate Sustainable Annexes 2019 Annual report Group results governance development Share capital and profit distribution

5.1. Structure 5.2. Distribution of profit of the share capital

The authorised share capital of PAO Sovcomflot as at 31 December 2019 In relation to the distribution of net profit and the payment of dividends, amounted to RUB 1,966,697,210 and consisted of 1,966,697,210 ordinary PAO Sovcomflot is governed by Instructions No. 774-r of the Russian registered shares with a nominal value of one rouble each. Government dated 29 May 2006 “On Establishing the Position of the Shareholder – the Russian Federation in Joint-Stock Companies” In pursuance of the resolution of the extraordinary general meeting as well as the Regulations on the Dividend Policy of PAO Sovcomflot. of shareholders dated 1 March 2018 (Instructions No. 95-r of the Federal Agency for State Property Management dated 1 March 2018) to increase Main areas of expenditure of the 2018 net profit the authorised capital by placing 280,956,743 additional ordinary registered shares, on 28 August 2018 the PAO Sovcomflot Board of Directors (Minutes Area Amount Comment % 100 No. 174) approved the decision on the additional issue of ordinary registered Amount of dividends transferred to the federal budget RUB 1,435 million Paid from the 2018 profit uncertified shares of PAO Sovcomflot and the securities prospectus Amount allocated to the reserve fund 0 The reserve fund is fully formed of the PAO Sovcomflot for these shares. The said documents were registered by the Bank of Russia shares are federally on 22 November 2018 (state registration number of the additional issue: Amount allocated to other funds and their names 0 There are no other funds owned. The Russian 1-01-10613-A). Federation, represented Amount allocated to implement investment projects RUB 1,435 million Recapitalisation of subsidiaries to finance by the Federal Agency The decision on the additional issue of ordinary registered shares of PAO the vessels under construction (hulls S923 for State Property Sovcomflot and the securities prospectus for these shares were amended and S924) Management, is the sole according to the decision made by the PAO Sovcomflot Board of Directors shareholder of PAO on 12 November 2019 (Minutes No. 186 dated 13 November 2019). The securities placement period was extended by one year. The amendments A resolution regarding the allocation of the financial result for the reporting Sovcomflot. 1 were registered by the Bank of Russia on 30 December 2019. year , including the dividend payment for 2019, will be adopted at the Annual General Meeting of Shareholders in 2020. By a resolution of an extraordinary general meeting of shareholders (Instructions No. 70-r of the Federal Agency for State Property Management dated 13 February 2010) the Charter of PAO Sovcomflot was amended to increase the number of authorised shares to 655,565,735 as part 1. For more information on the income statement see section 3.4, Financial results. of implementing the forecast plan of federal property privatization for 2020- 2022 approved by Russian Government Order No. 3260-r dated 31 December 2019. The amendments to the Company’s Charter were registered on 26 February 2020.

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5.3. Dividend Dynamics of dividend payments to the Russian Federation, 2015–2019 (RUB million) 000 policy 9 11 000

The dividend policy is based on maintaining an optimal balance of interests 000 between PAO Sovcomflot and its shareholder when distributing net profit, and on the need to increase the investment appeal of the Company and its 000 capitalisation. 000 On 14 December 2012 the OAO Sovcomflot Board of Directors approved the Dividend Policy, which sets dividends at a level no lower than 25 2000 19 % of the net profit attributable to the PAO Sovcomflot shareholder, 1

1,435 in accordance with the audited consolidated financial statements prepared 1000 112 US$ MILLION under IFRS, and converted into roubles at the CBR exchange rate at the end the amount of dividends of the reporting period. 0 for 2018 paid by PAO 201 201 201 201 2019 Sovcomflot in 2019 On 23 May 2019 the Board of Directors recommended that the General Meeting of Shareholders allocate RUB 1,435 million in dividend payments, based on the 2018 results1. This amount of dividends accounted for 50 % On 7 April 2020, considering the financial results according of the RAS net profit of PAO Sovcomflot. to the consolidated financial statements of PAO Sovcomflot and its subsidiaries as at 31 December 2019 prepared under IFRS, the Board On 26 June 2019 the Annual General Meeting of Shareholders of PAO of Directors made a preliminary recommendation that the Annual General Sovcomflot adopted a resolution on the payment of dividends in accordance Meeting of Shareholders of PAO Sovcomflot allocate to dividend payment with recommendations from the Board of Directors2. The amount of dividends RUB 7,181 million, representing 50 % of the consolidated profit attributable was transferred in full by PAO Sovcomflot on 8 July 2019. Dividends based to the owners of PAO Sovcomflot according to the IFRS financial statements on the operating results for 2018 were paid in 2019 in full and by the deadlines prepared in accordance with the requirements of Federal Law No. 208-FZ set by Russian legislation. As at 31 December 2019 PAO Sovcomflot had no «On Consolidated Financial Statements» dated 27 July 2010. outstanding dividend payments.

1. Minutes No. 182 dated 27 May 2019. 2. Instructions No. 373-r of the Federal Agency for State Property Management dated 26 June 2019.

PAO «Sovcomflot» 105 6. SUSTAINABLE As an industry leader, Sovcomflot adheres DEVELOPMENT to the principles of sustainable development, giving priority to the safety of navigation, environmental protection, and maintaining a high quality service. Recognising its responsibility to the global community, Sovcomflot declares: Safety Comes First About Strategy Operating Corporate Share capital and profit Annexes 2019 Annual report Group results governance distribution Sustainable development

SCF Management Services (Dubai) responsible for the technical management 6.1. Occupational health of the SCF Group fleet is certified by Green Award - an international environmental organisation that was the first in the world to introduce an environmental assessment system for ships based not only on the ship’s and safety technical characteristics, but also on the professional competence of the crew and management level. Sovcomflot Group has been participating in the Green Award scheme since 1996. Green Award auditors visit SCF’s ships and offices 6.1.1. SAFETY MANAGEMENT SYSTEM AND SERVICE QUALITY annually. Obtaining approval requires that international conventional requirements governing navigation safety, quality and environmental protection are not just met, but substantially exceeded. At the end of 2019, 17 SCF The system is based on advanced methods for ensuring the effective and safe Group’s ships had Green Award certificates (which is dictated by the specifics The fleet is operated technical operation of vessels and vessel equipment as well as personnel of the region of operation). as part of an integrated management, approved in accordance with requirements of the International safety management Safety Management Code (ISM Code), the ISO 9001:2015 (Quality Management Navigational safety and occupational health and safety issues are considered system (ISMS). System) and ISO 14000:2015 (Environmental Management System) standards, at various levels of Sovcomflot Group management. The Committee the Ship Safety Management System based on the ISM Code, as well for Innovative Development and Technical Policy of the PAO Sovcomflot as the requirements of the Flag Administration, and best industry practices. Board of Directors conducts a preliminary review, analysis, and elaboration of recommendations for improving the safety and service quality Sovcomflot Group works with top-class charterers, leading oil & gas companies management system. The PAO Sovcomflot Executive Board has set up and traders who care about their reputation and are demanding in the selection the Committee for the Safety of Navigation, Environmental Protection, Quality of their carriers. To meet customer expectations, the company strives to exceed and New Technologies, which is responsible for establishing the areas, goals standard requirements, as evidenced by the results of external inspections. and objectives of the Group’s policy related to occupational health and safety. The best proof of Sovcomflot Group’s high level of reliability and qualification as a carrier is the willingness of key customers to sign long-term contracts with it. Today, SCF’s ships operate under time charter contracts with most of the major global oil & gas companies. 6.1.2. KEY OCCUPATIONAL SAFETY INDICATORS

Sovcomflot devotes much attention to raising the safety culture, which directly Sovcomflot Group has been steadily retaining midpositions in rankings influences the number of incidents attributed to human factor. The company compiled by the International Association of Independent Tanker Owners (INTERTANKO) and Q88 in terms of occupational health and safety indicators, continuously monitors safety culture dynamics in the fleet, conducts specialised training sessions for seagoing personnel based on modern sociology science which is a good result and confirms quality of management and compliance 0.45 research to develop adequate skills in responding to emergencies with ship with high safety standards. the LTIF value equipment. In 2019 the average (vs. 0.53 in 2018) number of observations Thee Lost Time Injury Frequency (LTIF) for the Group’s fleet in 2019 was related to navigational The safety culture in the SCF fleet is based on augmenting Russian maritime 0.45, 15% down on 2018 (the LTIF for the global tanker fleet, according safety and quality, made traditions. Respect for knowledge and the experience accumulated to INTERTANKO data for 2019, averages 0.50). during inspections of SCF over decades provides an undisputed competitive advantage. SCF Group’s vessels by oil majors, was training centres in St. Petersburg and Novorossiysk, where SCF crews receive The Total Recordable Case Frequency (TRCF) was 0.91, which is also lower 2.44 per inspection. This, regular training and refresher courses, have become an important element by 11.7% compared to 2018 (the TRCF for the global tanker fleet, according according to Q88 data, in the system of professional development of marine personnel (for more details to INTERTANKO data for 2019, aver-ages 1.13). 0.91 is significantly better than see section 6.2.2. Professional development). the industry average (2.91). the TRCF value Sovcomflot Group’s specialists conduct research on the features of Arctic (vs. 1.03 in 2018) shipping, provide support for innovative projects, and participate in discussions of industry regulations as part of working groups. To improve the safety and efficiency of ice escort operations in the Arctic, Sovcomflot employees regularly conduct joint seminars with Atomflot for seagoing and onshore personnel. In addition, company specialists participate in meetings of the Maritime Safety Committee of the Russian Chamber of Shipping as well as meetings with representatives of the International Maritime Organization (IMO) and develop manuals on ISM Code implementation in collaboration with the International Chamber of Shipping (ICS).

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Sovcomflot Group is a reliable and stable employer, which complies 6.2. Human resources with the legal requirements and strictly fulfils its financial obligations to employees. This is appreciated by our personnel, as evidenced by a consistently high retention rate in the fleet: in 2019 it was about 95.6% and social programmes for officers and 94.3% for ratings. The retention rate for senior officers 425 in 2019 was 98.2%. This shows that Sovcomflot Group is viewed PEOPLE as an attractive employer, and is able to retain skilled staff. 6.2.1. EMPLOYMENT POLICY were hired Sovcomflot Group pays special attention to the career growth by Sovcomflot Group and development of its employees. A performance appraisal of the Group’s The professionalism In accordance with the Group’s employment policy, all crews in the SCF fleet employees based on key performance indicators is regularly conducted. in 2019 of masters are manned with maritime professionals whose training meets the world’s Based on the results of this appraisal, 631 employees were promoted and crew members, best standards. to a higher rank, including 126 senior officers, 273 junior officers and 231 as well as employees ratings. of onshore units, plays The Employment Policy is reflected in a system of internal regulations an important role geared to attract and select qualified personnel, provide professional The Group has developed a programme to promote the most talented first in achieving goals set development (training, career growth, talent pool), motivation and incentives officers and second engineers to the positions of master and chief engineer by the SCF Group’s for employees, and assess their performance. development strategy. respectively. The key areas of HR activities carried out by SCF Group are as follows: • Enhancing the attractiveness of work on the Group’s vessels, combined with improving the system for selecting, training and manning of ships with competent crews; • Optimising costs through benchmarking and aligning with industry 6.2.2. PROFESSIONAL DEVELOPMENT averages; • Further improving the personnel motivation system, implementing A shipping company’s performance largely depends on the skills the Long-Term Motivation Programme designed for five years. At the start of the seafarers entrusted with the navigation of high-tech vessels. of the programme, in 2015, the best masters and chief engineers Therefore, Sovcomflot actively participates in professional development employed on Sovcomflot Group vessels became its participants. of its employees.

The Sovcomflot Group’s total staff number is over 7,700. Due to the nature The Group regularly organises seminars for fleet officers to exchange of the Group’s operations, fleet personnel (6,806 people as at 31 December professional experience. In the reporting year 655 fleet officers participated 20191) make up the bulk (about 90 %) of the total Group headcount. Also, in these seminars. as at the end of the reporting period 109 cadets of maritime educational institutions were receiving practical training at sea in the SCF fleet. In 2019, 2,054 people completed 5,948 refresher courses at the company expense in accordance with the STCW convention and SCF’s requirements.

The SCF Group’s operating specifics create the need for subject matter Total number of fleet personnel by category specialists. As part of staff training and retraining, training is organised Category As at 31 December 2019 both through cooperation with state maritime educational institutions and at in-house training centres. Officers 3,059 Ratings 3,712 Cooperation with maritime educational institutions Seismic exploration group 35 Total 6,806 In order to attract young skilled specialists, Sovcomflot Group fosters cooperation with Russian maritime educational institutions.

The cooperation agreements previously concluded with the country’s three main maritime universities: Admiral Ushakov Maritime State University (Novorossiysk), Admiral Makarov State University of Maritime and Inland Shipping (Saint Petersburg), Admiral Nevelskoy Maritime State University (Vladivostok) and Captain Varukhin Maritime Centre (Velikiy Novgorod) continued to be in effect in 2019.

Sovcomflot Group participates in the preparation and training of future specialists, provides support for teaching staff, helps organise navigation practice for cadets and internships for teachers on an annual basis, and takes part in renewing and modernising the material and technical base of universities.

As part of agreements on mutually beneficial collaboration with universities, Sovcomflot continues allocating funds to educational institutions, primarily for equipping classrooms and purchasing additional teaching aids, 1. Including the crews of the ships of third-party owners managed by SCF Group. and supporting post-graduate students and young teachers.

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Main types of cooperation with maritime educational institutions 6.2.3. PERSONNEL MOTIVATION Type Nature of cooperation Results of practical training of cooperation Incentive and motivation programmes broken down by personnel categories

Navigation practice Cadets and trainees from maritime universities receive hands-on In 2019, 175 cadets of maritime universities Incentive and motivation programmes for cadets training at sea on board the Group’s vessels. HR Department and 8 trainees from secondary vocational education specialists recruit the most promising graduates based institutions received practical training on board For fleet personnel For onshore personnel on the results of pre-graduation practical training, the average the SCF ships. degree score, and the characteristics of the academic institution. 1. Long-term contracts for officers on gas carrier crews 1. Non-material and material incentives for the performance 2. Corporate pension programme of particularly important assignments Targeted training SCF Group implements targeted training programmes for young In 2019 all cadets from dedicated groups received 3. Bonus for successful results of inspections and other control 2. Corporate pension programme of fleet specialists fleet officers in collaboration with leading Russian maritime practical training on SCF Group vessels. 59 graduates measures 3. Incentives in the form of state, institutional, regional, and corporate universities. The dedicated group of cadets at Admiral Makarov of higher and secondary educational institutions were 4. Incentives in the form of state, institutional, regional, and corporate awards State University of Maritime and Inland Shipping in 2019 consisted employed by SCF Group. awards 4. System of annual bonuses based on KPI performance of 18 people: 10 navigators, 5 ships engineers and 3 electrical 5. The Long-Term Motivation Programme for best masters and chief 5. The Long-Term Motivation Programme for top and middle officers. A similar dedicated group of 20 people was formed engineers of the SCF Group’s vessels management from third-year cadets at Admiral Nevelskoy Maritime State University. As part of a joint project between SCF Group and Admiral Ushakov In 2019, 56 cadets from the targeted enrolment Maritime State University, a targeted enrolment programme groups received practical training on board the SCF Social support for personnel for cadets within the quota for training funded from the federal Group vessels. budget has been operating at the University since 2014. The social policy of the Group is implemented in accordance About with the approved local regulations. The main goal of SCF Group’s social programmes is to attract and retain personnel, and enhance the reputation of Sovcomflot as a socially responsible employer. Sovcomflot personnel training system

The management companies belonging to Sovcomflot Group regularly 97 % Sovcomflot Group has created an in-house training system for fleet conclude collective bargaining agreements with the Seafarers’ Union personnel meeting the highest international standards. of Russia (SUR). A collective bargaining agreement is one of the basic tools of the Group’s of the personnel management system guaranteeing employees a decent employees are covered 5,755 This system includes two in-house training centres: wage and safe working conditions meeting state and international standards by collective bargaining SEAFARERS • The Sovcomflot Training Centre in St. Petersburg, which provides training agreements (including covering the whole range of maritime operations in the Arctic, including Sovcomflot Group cooperates with the trade union in the following areas: 100 % of seafarers). received training training on the skills needed for servicing oil platforms, navigation in northern • Increasing wage levels; in the SCF in-house latitudes, navigation in ice – both independently and accompanied • Preserving jobs; training centres in all by icebreakers, etc. The centre has been certified by classification society • Ensuring safe working conditions; areas of training in 2019 Russian Maritime Register of Shipping (RS) to ISO 9001:201 («Quality • Insuring the fleet personnel of Sovcomflot Group against accidents during 5,199 Management»). periods between voyages; SHIPBOARD • The Novoship Training Centre in Novorossiysk, which has been operational • Support programme for pensioners (one-time financial assistance, for more than 15 years and today is one of Russia’s leading maritime vouchers for health resort treatment, certificates of merit, educational institutions. The centre has been certified by RS to ISO and memorable gifts). employees of SCF 9001:2015 («Quality Management») and under the STCW 78 Convention, Group were Pension as amended («Quality Standards System»). According to the latest estimate Programme by the auditors of the Centre, the Novoship Training Centre occupies 6 % Non-government pension programme participants at the end of the domestic market for specialised training. The Pension Programme designed for Sovcomflot seafarers has been of 2019 In February 2019 functioning since 2007, and is being implemented jointly with Ingosstrakh the Sovcomflot Training Sovcomflot Group stimulates professional development among its staff Life. Sovcomflot Group companies make monthly contributions Since the beginning Centre in St. Petersburg and encourages employees to pursue additional education in order to gain from their own funds for seafarers in proportion to the length of service of the Programme, became the first in Russia in-depth knowledge of modern technologies used in fleet operations. on a ship. to provide training SCF’s engineering staff have very high scientific capabilities: currently, 33 for crews of ships seafarers, who completed post-graduate studies and received the title subject to the IGF Code of Candidate of Technical Sciences or are preparing to defend their theses, work Upon reaching retirement age, the programme participants may receive the accumulated funds at any time, either in full or in monthly payments. (International Code in the Company’s fleet. of Safety for Ship 517 Using Gases or Other At present, rank and file staff are covered by another pension programme SEAFARERS Low-flashpoint Fuels) implemented by the Company in cooperation with the Seafarers’ Union under a program developed of Russia. have received pension by this centre by taking into payments totalling account the experience more than in operating Aframax tankers of the ‘Green Funnel’ series.

127 RUB MILLION

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6.3. CHARITY AND SPONSORSHIP Key areas of sponsorship and charity

Sovcomflot Group PAO Sovcomflot provides sponsorship and charity assistance in accordance Charitable assistance to St. Olga’s Children’s Hospital adheres to the principles with the relevant regulations approved by the PAO Sovcomflot Board of socially responsible of Directors on 17 December 2008 (Minutes No. 94) with the amendments (Saint Petersburg) 67.3 business practices. and additions approved by the PAO Sovcomflot Board of Directors on 12 RUB MILLION The Company’s charity May 2010 (Minutes No. 104), 7 April 2015 (Minutes No. 143) and 31 July 2017 Sovcomflot Group has been providing support to St. Olga’s Hospital and sponsorship activities (Minutes No. 164). and allocating funds to equip the anaesthesiology and intensive care the total amount ward of the hospital with modern high-tech equipment for more than are aimed at supporting of the Group’s 10 years. In the past year, thanks to the support of Sovcomflot, the ward educational and social In accordance with these regulations, the Company annually allocates sponsorship and charity institutions, enhancing became the first in St. Petersburg to receive a craniocerebral hypothermia for these purposes 1 % of the budgeted annual net profit calculated expenses in 2019 the prestige according to international financial reporting standards in US Dollars. In 2019 apparatus and non-invasive lung ventilation devices as well as other unique of the maritime the Group’s sponsorship and charity expenses amounted to RUB 67.3 million equipment, which allows seeing more patients, saving the lives of newborn profession, preserving (US$1.09 million1). babies and reducing the number of lethal outcomes, maintaining it steadily the cultural and historical at about 1 %. heritage and natural diversity of our country, Distribution of the Group’s sponsorship and charity expenses Charitable assistance to the Safonovo Orphanage and taking care in 2019 (RUB million) of industry veterans. Boarding School (Smolensk Region) Sovcomflot has been providing support to the boarding school for 10 4�0 5�6 years, helping its team to prepare children for independent lives and create ucton for them conditions similar to those found in a family. In 2019 the boarding 6�7 11�6 school had 75 children under its care. Sports

nronment In addition to providing material support to equip the classrooms and living quarters with necessary equipment, in 2019 Sovcomflot continued eon proects to assist in children’s socialisation, helping organise trips and excursions for educational, cultural, entertainment, spiritual and ethical purposes Cuture to Smolensk, Moscow, St. Petersburg, Outpost Museum, the Trinity St. 10�1 eth cre Gerasim-Bolidno Monastery, and the 4th All-Russian Chess Tournament 13�5 «Voskhozhdenie» in Sochi. ther support or eter ns, to the sn te, etc� Active cooperation between Sovcomflot and the Youth Maritime League enables the school residents to regularly take part in the gatherings of young 15�8 sailors in Children’s Centre «Artek» on the Black Sea coast.

Charitable assistance to the St. Tikhon Orthodox Humanitarian University (Moscow) Sovcomflot started cooperation with the university in 2016. With the Company’s participation, in 2019 the university continued to implement the pilot project «Social and pedagogical assistance and adaptation of orphans and children deprived of parental care» at the Safonovo Orphanage Boarding School. Master classes, trainings and sightseeing and pilgrimage trips were organised for orphanage residents.

The university expects to use this experience in the future work with other social institutions, in particular, in the Arkhangelsk, Murmansk and Volgograd Regions.

1. At the official exchange rate set by the Central Bank of the Russian Federation as of 31 December 2019.

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Support for professional maritime education Charitable assistance to the Eurasian Centre for the Preservation of Far Eastern Leopards (Primorsky Krai) Sovcomflot attaches great importance to supporting maritime educational institutions. To this end, Sovcomflot for many years has been actively Sovcomflot has been providing assistance to the Land of Leopard National cooperating with the country’s key maritime universities: Admiral Makarov Park and supporting the programme aiming to preserve and restore State University of Maritime and Inland Shipping (St. Petersburg), Admiral the population of the rarest leopard subspecies, the Far Eastern Leopard, Ushakov Maritime State University (Novorossiysk) and Admiral Nevelskoy for six years. With the Company’s assistance, a set of environmental Mari-time State University (Vladivostok). For more information please see and biotechnical measures is being taken in the National Park, material section 6.2.2. Professional development. and technical support is provided to the ranger inspection service.

Since 2016 Sovcomflot has been actively supporting the development In 2019, through the support from Sovcomflot, the Far Eastern leopard of children’s sailing in Primorskry Krai through the Sailing School photo-monitoring pro-gramme, which confirmed a steady growth at the Admiral Nevelskoy Maritime State University. Experienced teachers in the subspecies’ population, was implemented in full. Currently, 126 instil in schoolchildren a love of the sea, help them learn the ABCs animals live in the National Park. The centre’s specialists expect that of the maritime profession on Optimist and Cadet class dinghies. Currently the leopard’s conservation status can be changed from the «critically the school has about 50 students. endangered» to «vulnerable» in 5-7 years. This actually means that the leopard will be saved. Charitable assistance to Captain Varukhin Maritime Centre (Velikiy Novgorod) Charitable assistance to the Centre for the Study Sovcomflot is a member of the Centre’s Supervisory Council and annually and Preservation of the Amur Tiger Population (Primorsky Krai) provides active support for the development of this unique educational Sovcomflot has been financing the project for the study and preservation institution, allocates funds to outfit class-rooms and ships with multimedia of the Amur tiger population in the Far East since 2016. The Amur tiger and nautical navigation equipment. is the northernmost subspecies of tiger and is listed in the Red Book.

In addition to material support, Sovcomflot helps the Maritime Centre With Sovcomflot support, the centre continues to develop successfully organise meetings with Company’s representatives and deep-sea captains its research programme, monitor the tiger population, increase to provide professional orientation for pupils, gives them an opportunity the effectiveness of the tiger’s protection outside the specially protected to visit SCF Group’s training centres and museum in St. Petersburg natural reserves, carries out awarenessraising and educational activities and training grounds at the Admiral Makarov State University of Maritime and is improving the regulatory framework. and Inland Shipping. Sovcomflot’s annual support makes it possible not only to preserve the existing traditions of the children’s fleet, but also to form a basis for the development of innovative competencies required for work Charitable assistance to the Russian America Project (Fort in a modern fleet. Ross, US) Since 2012, Sovcomflot, in collaboration with Transneft and Chevron, Charitable assistance to the Youth Maritime League has been assisting in preserving Fort Ross, a monument of Russian Sovcomflot has been cooperating with the public organisation Youth history and culture in the U.S. This former Russian mercantile settlement Maritime League since 2016, continuing to develop one of the key areas in California was founded in 1812. Fort Ross is listed on the U.S. National of its sponsorship and charity activities - raising the prestige of the maritime Register of Historic Places and is a Historical Park of the state of California. profession and maritime sports. With the participation of Sovcomflot, over two thousand children and teenagers from 49 Russian regions have Fort Ross Dialogue, an international forum focusing on economic and cultural taken part in the gatherings of young sailors in children’s centres Artek (on interaction between Russia and the U.S., is a continuation of this initiative. the Black Sea coast) and Ocean (in Primorie) over the past 5 years. Forum events are held twice a year, in Russia and in the U.S. In 2019 the conference was hosted by the ancient town of Totma (Vologda Region), During gatherings young sailors learn fleet skills, study the history where Ivan Kuskov, the founder and first commander of Fort Ross, was born and traditions of the Russian marine fleet, visit places of military glory. Thus, in 1765. participants in the Far Eastern gathering visited combat ships of the Pacific Fleet, Admiral Makarov Pacific Higher Naval School and Admiral Nevelskoy Maritime State University. Participants in the gathering in the Artek visited memorable places in the Hero City of Sevastopol, the Military History Museum of the Black Sea Fleet, the Moskva cruiser. Besides, rowing and sailing regattas were organised in the follow-up of the gatherings. In November 2019, the best young sailors took part in the round-the-world voyage dedicated to the 200th anniversary of the discovery of Antarctica by Russian seafarers Faddey Bellingshausen and Mikhail Lazarev and the 75th anniversary of the Victory in the Great Patriotic War.

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Sponsorship support for Vladimir Salnikov Cup (St. Petersburg) 6.4. Environmental Since 2009, Sovcomflot has been providing support for Vladimir Salnikov Cup, an international swimming tournament featuring the strongest athletes from Russia and around the world. These competitions have been included protection in the European Swimming League (LEN) calendar as a top-level international tournament for many years. 6.4.1. ENVIRONMENTAL PROTECTION POLICY The 2019 tournament attracted over 300 athletes from different counties, who competed for 32 sets of awards. The triumphants at the Cup All the new tankers of Sovcomflot Group have an additional class notation The Sovcomflot Group were Russian swimmers Maria Kameneva and Mark Nikolaev, who won confirming their high environmental compatibility. This is another proof fleet meets the highest the tournament Grand Prix and set new records. of the responsible attitude of PAO Sovcomflot to environmental issues. environmental standards taking into consideration Sponsorship support for the All-Russian Federation of Sailing In 2019 no major spills of chemicals, oil or fuel from the fleet were both current and planned registered. norms and requirements. Sovcomflot Group has been providing sponsorship support to the Federation for 10 years. In doing so, it is paying particular attention to the development However, Sovcomflot Group’s operating specifics are associated with certain of children’s and youth sailing: new schools and sections have been organised man-made environmental impacts, which include emissions from different in Russian regions, athletes are provided with support to participate in major types of fuel burned by ship engines and discharge of wastewater generated competitions, such as the Russian Championship and national champion- by ships. ship in the Optimist class. In addition, support from Sovcomflot helps the Federation train Russian Paralympic athletes. The Sovcomflot Group environmental protection policy is an integral component of the overall management system for safe operation of ships Charitable assistance for the Victory Day-London project and pollution prevention established in accordance with the International Safety Management Code, which lays down the principles, goals, objectives For many years, Sovcomflot has been supporting the Victory Day-London and key areas of the company’s environmental safety activities. project, organised in memory of the veterans of the Northern convoys, who during the Second World War helped ensure the delivery of military cargoes The main goals of the SCF environmental protection policy are to increase from the U.K. and the U.S. to the USSR northern ports of Arkhangelsk environmental sustainability of the fleet and to raise the capitalisation and Murmansk. As part of the project, Russian and British veterans meet of the Group by ensuring the reliability and environmental safety annually aboard the Belfast cruiser, a museum ship and the last surviving ship of the services rendered. in the U.K. that escorted Northern convoys. The Environmental Protection Policy provides for the following activities: October 2019 marked the 10th anniversary of Belfast’s restoration - a joint Russian-British project involving PAO Sovcomflot. • Environmental monitoring and audit; • Programmes aimed at increasing the competencies and awareness of personnel in relation to environmental protection; • Investment programmes to increase the energy efficiency and environmental safety of core operations; • Environmental risk management programmes, which include risk identification and assessment, implementation of environmental protection measures, and monitoring and assessing their adequacy.

Sovcomflot Group has in place an environmental management system, which was established in accordance with the principles, goals and objectives of the Environmental Protection Policy, and encompasses the activity of all employees of the Group, from ships’ crews to top management.

The Sovcomflot Group’s Green Charter - a declaration of commitments on sustainable development - was approved in March 2019. The document pays special attention to measures to fight climate change by using innovative technologies and raising personnel awareness on environmental protection.

The Green Charter lays down the company’s commitment to develop an integrated management system based on compliance with industryspecific international regulations and standards so as not only to meet expectations of its stakeholders, but also to exceed them in some cases.

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The company also declares its intention to continue implementing ‘green’ Dynamics of nitrogen oxides (NOx) emissions, tonnes technologies, including energy saving ones, as well transparent energy consumption calculation methods. Reducing carbon footprint from the fleet 0000 while maintaining high economic indicators is one of the key directions 0 for development specified in the document. 2 0000 In the HR management area, the company confirms its commitment to create 92 favourable working conditions and provide opportunities for enhancing professional skills to existing employees and trainees, ensure gender 0000 equality and access to qualified medical aid, and pursue a «zero tolerance» policy towards corruption in any form. 0000 6.4.2. ATMOSPHERIC EMISSIONS 20000 Air emissions The basic components of atmospheric emissions are carbon, sulphur from marine vessels and nitrogen oxides formed during the combustion of fuel in ship engines. account for 5 to 10 % 10000 of global emissions from the transport sector. 0 201 201 201 201 2019

Dynamics of carbon dioxide (СО2) emissions, 000’tonnes Dynamics of sulphur oxides (SOx) emissions, tonnes

000 0000 0 00 12 19 921 000 0000 10 2 2

000 0000

2000 20000

1000 10000

0 0 201 201 201 201 2019 201 201 201 201 2019

Energy Efficiency Operational Index (EEOI) is calculated as the total CO2 emissions (in grammes) produced on a voyage per total tonne-miles The decrease generated (tonnes carried multiplied by distance travelled). in CO2 emissions is due to the increase The table below shows the EEOI calculation for different types of Sovcomflot in the use of LNG Group’s vessels operating on voyage (spot) contracts. In this case, fuel in 2019 to 17 % fuel for the vessels is procured by the ship owner or fleet operator. of the total fuel consumption A decrease in the EEOI index means a decrease in carbon oxides emissions of the fleet, which and, accordingly, in fuel consumption per tonne-mile, which characterises generally boosts an improvement in the operational performance of the company’s fleet. the energy efficiency of ships.

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EEOI index of Sovcomflot Group’s ships in 2019, grammes/tonne-mile Advantages of LNG operation are most evident in figures: the reduction of sulphur oxides and soot emissions reaches 100 %, nitrogen oxides Type of vessel Standard Actual emissions decrease by at least 76 %, and carbon dioxide emissions - by up 1 Suezmax tankers ≤ 12 8.346 to 30 % as compared with power plants running on conventional heavy fuel. Aframax tankers ≤ 15 10.118

LR2 product carriers ≤ 15 11.053 6.4.3. WASTEWATER AND WASTE MANAGEMENT

LR1 product carriers ≤ 16 13.294 A key focus of the Sovcomflot Group’s environmental protection activities is reducing the amount of wastewater and waste that gets into the World MR product carriers ≤ 25 19.617 ocean during ship operations. These activities are carried out pursuant to the internal procedures of the Group, which encompass the requirements Handy product carriers ≤ 25 24.809 of both international and domestic legislation. Panamax bulkers ≤ 12 7.580

Amount of different types of garbage disposed of in 2019, cubic metres The Group is constantly supplementing the fleet with energy efficient and environmentally sustainable, new generation vessels which incorporate innovative technologies, developing a Ship Energy Efficiency Management 471 Plan (SEEMP) for each ship in order to control emissions of hazardous substances from exhaust fumes, and fulfilling EU Council Directive 2012/33/EU on the sulphur content of certain marine fuels, using ship fuel with a reduced schre nto the se n sulphur content. ccornce th the 1,703 A 7378 Conenton The commissioning of a series of SCF’s new generation vessels, the world’s first Incnerte on bor Aframax tankers specially designed to run on LNG, has significantly contributed to environmental protection. The tankers of this series have dual-fuel main eere to onshore and auxiliary engines and boilers. These vessels are fitted with Selective recepton ctes Catalytic Reduction technology, which enables compliance with Tier III regulations governing NOx emissions (Annex VI to the International Convention 1 for the Prevention of Pollution from Ships) even when running on diesel fuel . 3,724

Atmospheric emissions from an LNG-fuelled power plant, tonnes per year At present the Group’s ships are equipped with wastewater treatment systems that combine me-chanical, chemical, physical-chemical (including electrolysis) and biological methods. All wastewater treatment plants Carbon Nitrogen Sulphur in sulphur Particulate on board ships have the approval of classification societies confirming dioxide oxides oxides matter compliance with the requirements of Annex IV of the MARPOL 73/78 Convention. The quality of discharged water is confirmed by a wastewater 0000 1000 12 2 2 921 11 plant certificate (type approval certificate). 00 000 10 Management of garbage produced on ships during operations is also 00 20 organised in strict compliance with Annex V of the MARPOL 73/78 0000 Convention, which governs the prevention of pollu-tion by garbage 200 from ships. 2000 00 1

20000

1. 00 10 The data were confirmed by the results obtained from the first year of operation of the ‘Green Funnel’ series of Aframax tankers. The reduction 1000 in nitrogen oxides emissions was 76-96 % depending on the navigation area. 10000 21 200 2 000 0 0 0 0 0 0 Heavy fuel Heavy fuel Heavy fuel Heavy fuel G G G G

1. More detailed information about this series in presented in section 3.2 of this Annual Report, Investment activities.

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6.4.4. ENERGY CONSUMPTION AND EFFICIENCY During 2019 Sovcomflot Group continued to implement a number of organisational and technical measures to promote efficient use of fuel Different types of ship fuel are the main types of energy resources consumed and energy resources and improve the environmental sustainability in production ac-tivities of the Group. of the fleet: • Applying slow steaming on ships to reduce fuel consumption Dynamics of fuel consumption in 2017-2019 and emissions. The results show that operating vessels at low speeds (7-9 knots) with the main engine loads less than 40 % of MCR increases Type of fuel 2019 2018 2017 their energy efficiency and environmental compatibility. Fuel oil, tonnes 958,550 70 % 1,025,791 72 % 943,112 75.6 % • Determining and applying the optimal pitch angle for each vessel Diesel fuel, tonnes 203,754 15 % 231,860 16 % 208,690 16.7 % during ballast voyage to minimise fuel consumption on the main engine. Gas engine fuel, tonnes 200,475 15 % 166,741 12 % 96,442 7.7 % The optimal trim was determined for each series of vessels by conducting thermal tests at various pitch angles. This measure has been used Total 1,362,779 100 % 1,424,393 100 % 1,248,244 100 % on the company’s ships since 2009. • Monitoring and optimising energy consumption for heating Sovcomflot Group is actively engaged in work to implement a state and ventilation in the ship’s living quarters. programme for introducing gas engine fuel in the transport sector. • Optimising the power output in navigation and harbour modes. In 2019, the share of gas engine fuel amounted to 15% of the total ship • Establishing an energy conservation culture on ships. fuel consumption against 12% a year earlier. The increase in this indicator • Checking fuel and oil consumption meters on ships. is due to an increase in the intensity of liquefied gas transportation • Monitoring the state of the hull and its timely cleaning. The main engine and the addition of new-generation LNG fuelled vessels to the Group’s fleet. propeller charac-teristics are monitored. The speed of the ship relative The SCF fleet includes five LNG tankers equipped with LNG powered internal to land and water, weather conditions, and propeller slip are controlled combustion engines and four LNG tankers that also use gas fuel for the ship on a daily basis. In some cases, underwater images are taken to evaluate power plant (steam turbine). In addition, six dualfuel Aframax tankers using hull fouling. liquefied natural gas as the primary fuel were put into service in 2018-2019. • Ensuring that the consumption of main engine cylinder oil does not exceed the recommended level. • Determining readiness of the ship’s power plant depending The consumption of energy resources such as heat, electricity, motor on the harbour accommodation and requiring a minimum number gasoline is associated with the operation of the Group’s onshore units. Their of mechanisms working (instant readiness and readiness at a given time). consumption volume is insignificant compared to consumption volumes 15 % • Using innovative lowfriction hull coatings in order to increase the inter- of different types of ship fuel. The Group does not consume any types docking period, reduce the hull fouling and eliminate the need of energy resources other than those listed above. the share of gas engine for underwater hull cleaning between dockings. fuel in the total amount • Replacing incandescent light bulbs with energysaving (fluorescent, of ship fuel consumed 6.4.5. ENERGY EFFICIENCY INITIATIVES including compact fluorescent, and LED) bulbs on a scheduled basis. (vs. 12 % in 2018) Placing light sources (local lighting, spot lighting) in an optimal way. Increasing the light output of existing sources (replacing lamp shades, Energy consumption reduction is conducive to minimising negative impact cleaning them, using more efficient reflectors). Using lighting control on the environment. Sovcomflot Group has developed and implemented devices (motion sensors, light sensors, timers). an Energy Conservation and Energy Efficiency Programme, aimed at promoting the efficient use of fuel and energy resources and improving Sovcomflot Group realises its high responsibility the environmental sustainability of the fleet. for the quality of the environment and seeks to minimise its adverse impacts Energy audits are conducted regularly on the Group’s ships. These make on the environment by introducing innovations, reducing energy con- it possible to obtain reli-able information on the consumption of fuel sumption, and increasing staff qualifications. and oil and the energy efficiency of ship engines and boilers and to identify opportunities for saving energy and increasing the energy and environmental performance of ship power plants.

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1. REPORT ON COMPLIANCE WITH THE PRINCIPLES AND RECOMMENDATIONS OF THE BANK OF RUSSIA CORPORATE GOVERNANCE CODE

This report on compliance with the principles and recommendations of the Corporate Governance Code of the Bank of Russia (the “CG Code”) was reviewed by the PAO Sovcomflot Board of Directors as part of its review of the 2019 Annual Report of PAO Sovcomflot at the meeting held on 7 April 2020.

The Company’s corporate governance system is based on the Russian statutory requirements and the application of international best practices of corporate governance.

The Company recognises that high standards of corporate governance are important not only for improving investment attractiveness, but also for enhancing the Company’s performance and reputation.

In the reporting year the Company continued work to improve the corporate governance model and practices. In accordance with the road map for implementing the CG Code at PAO Sovcomflot, approved by the Board of Directors in 2015, the following key internal documents that set forth the principles of corporate governance were updated (or re-approved): Amendments to the Charter of PAO Sovcomflot and Regulations on the Audit Department.

The form below contains the CG Code recommendations observed, partially observed or not observed by the Company, with justification of the reasons for non-observance and indication of alternative mechanisms used ANNEXES by the Company and its plans for improving the corporate governance system. No. Principles of corporate Criteria for assessing compliance Status of compliance Explanations for deviations governance with the principle of corporate with the principle from criteria for assessing governance of corporate compliance with the principle governance of corporate governance 1.1 The company should ensure fair and equal treatment of all its shareholders in the course of exercise by them of their right to participate in management of the company. 1.1.1 The company should afford its 1. The internal document Not observed Considering the fact that the sole share- shareholders the best possible of the company approved (non-applicable) holder of PAO Sovcomflot is the Russian opportunities to participate by the general meeting Federation, in accordance with Clause in general meetings, create of shareholders and governing 3, Article 47 of the Federal Law «On conditions for developing procedures for holding a general Joint-Stock Companies», the provisions a well-grounded position meeting is available in the public defining the procedure and time limit on the items on the agenda domain. for preparing, convening and holding of the general meeting 2. The company provides the general meeting are not applied, and coordinating their actions, convenient ways except for provisions regarding the time and also an opportunity of communications with the public, limit for holding an annual general to express their opinions such as the hotline, e-mail meeting. on the issues discussed. or online forum, which enable its shareholders to express In accordance with the Regulations their opinions on the agenda during on the Management of the Federally preparations for holding the general Owned Shares of Open Joint- meeting. The said actions were Stock Companies and Exercising undertaken by the company the Special Right for the Participation before each general meeting held of the Russian Federation during the reporting period. in the Management of Open Joint- Stock Companies (the “Golden Share”) approved by Russian Government Resolution No.738 dated 13 December 2004, the rights of the Russian Federation as a shareholder are exercised by the Federal Agency for State Property Management (Rosimushchestvo) as agreed with the Russian Ministry of Transport

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No. Principles of corporate Criteria for assessing compliance Status of compliance Explanations for deviations No. Principles of corporate Criteria for assessing compliance Status of compliance Explanations for deviations governance with the principle of corporate with the principle from criteria for assessing governance with the principle of corporate with the principle from criteria for assessing governance of corporate compliance with the principle governance of corporate compliance with the principle governance of corporate governance governance of corporate governance 1.1.2 Procedures for notification 1. A notice of the general 1.1.6 Procedures for holding 1. At the general meetings of the general meeting meeting was posted (published) a general meeting set of shareholders held and provision of materials on the website at least 30 days by the company should provide in the form of joint presence for it should enable prior to the date of the meeting. equal opportunity to all persons during the reporting period the shareholders 2. The notice of the meeting present at the general meeting a sufficient time for reports to get properly prepared includes the venue of the meeting to express their opinions on the agenda was provided for participation therein. and documents required for access and ask questions that might be and there was sufficient time to the premises. of interest to them. to discuss these issues. 3. The shareholders were granted 2. Candidates to the company’s access to information on who management and control proposed items for the agenda bodies were available to answer and nominated candidates questions from shareholders for the board of directors at the meeting at which and auditing commission their candidatures were put of the company. to the vote. 3. When making decisions related 1.1.3 During the preparation 1. In the reporting period to the preparation for and holding for and holding of the general the shareholders were given of general meetings, the board meeting the shareholders the opportunity to pose questions of directors considered using should be able to freely to members of the company’s telecommunication systems and timely receive information executive bodies and board to provide the shareholders about the meeting, of directors before and during with remote access to the general to pose questions to members the annual general meeting. meetings during the reporting of the company’s executive 2. Positions of the board period. bodies and board or directors, of directors (including special and to communicate with each opinions recorded in the minutes) 1.2 Shareholders should be given equal and fair opportunities to participate in the profits of the company by means of receiving other. regarding each item on the agenda dividends. of the general meetings held during the reporting period 1.2.1 The company should develop 1. The company has developed Observed were set out in the materials and put in place a transparent a dividend policy which has been for the general meeting. and clear mechanism approved by the board of directors 3. The company provided for determining the amount and disclosed. the eligible shareholders of dividends and their payment. 2. If the company’s dividend with access to the list of persons policy uses indicators entitled to attend the general from financial statements meeting from the date it was to determine the dividend received by the company in all amount, the respective provisions cases when general meetings were of the dividend policy take into held in the reporting period. account indicators of consolidated financial statements. 1.1.4 There should be no unjustified 1. In the reporting period difficulties preventing the shareholders were able 1.2.2 The company should not make 1. The dividend policy Observed shareholders form exercising to place proposals on the agenda a decision on the payment of the company clearly indicates their right to demand that of the annual general meeting of dividends, if such decision, financial/economic circumstances a general meeting be convened, at least during 60 days after without formally violating in which the company should to nominate candidates the end of the corresponding limits set by law, is unjustified not pay dividends. to the company’s governing calendar year. from the economic point bodies, and to place proposals 2. In the reporting period of view and might lead on its agenda. the company did not refuse to false assumptions to include shareholder proposals about the company’s activities. on the agenda or candidates 1.2.3 The company should 1. In the reporting period Observed for the company’s bodies due not allow the deterioration the company did not take any to typos and other insignificant of the dividend rights of its action leading to the deterioration flaws in such proposals. existing shareholders. of dividend rights of its existing 1.1.5 Each shareholder should 1. An internal document (internal shareholders. be able to freely exercise policy) of the company con- 1.2.4 The company should strive 1. In order to rule out Not observed In accordance with Article 81 his/her right to vote tains provisions whereby each to rule out any ways through any ways through which (non-applicable) of the Federal Law «On Joint-Stock in a straightforward and most participant in the general which its shareholders can shareholders can obtain any Companies», the Russian Federation convenient way. meeting may, until the end obtain any profit (gain) profit (gain) at the expense as the sole shareholder of PAO of the general meeting, request at the expense of the company of the company other than Sovcomflot is not deemed to be that a copy of the voting ballot other than dividends dividends and liquidation value, a controlling person and the affiliation filled out thereby be certified and liquidation value. the company’s internal documents criteria are not applied. by the counting commission. establish control mechanisms ensuring that any persons affiliated (associated) with its major shareholders (individuals who have the right to dispose of the votes attached to voting shares) are identified in a timely manner as well as the procedure for approval of transactions therewith in instances where such transactions are not formally recognised under the law as interested party transactions.

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1.3 The corporate governance system and practices should ensure equal terms and conditions for all shareholders owning shares 2.1.3 The board of directors should 1. The board of directors Observed of the same class (category), including minority and foreign shareholders, as well their equal treatment by the company. determine the principles determined the principles of and approaches to creation of and approaches to creation 1.3.1 The company should create 1. During the reporting period, Not observed The sole shareholder of PAO of a risk management of a risk management and internal conditions which would procedures for managing potential (non-applicable) Sovcomflot is the Russian Federation. and internal control system control system in the company. enable its governing bodies conflicts of interest of major in the company. 2. The board of directors and controlling persons shareholders were efficient evaluated the company’s risk to treat each shareholder and the board or directors paid management and internal control fairly, in particular, which would due attention to the conflicts system during the reporting rule out the possibility of any between shareholders, if any. period. abuse of minority shareholders by major shareholders. 2.1.4 The board of directors should 1. The company has developed Observed determine the company’s and implemented a policy 1.3.2 The company should 1. There are no quasitreasury Observed policy on remuneration and/or (policies) on remuneration and/ not perform any acts which shares or they were not voted reimbursement (compensation) or reimbursement (compensation) will or might result in artificial during the reporting period. of expenses for members of expenses for members redistribution of corporate of the board of directors of the board of directors control. and executive bodies and other and executive bodies and other key managers of the company. key managers of the company, 1.4 Shareholders should be provided with reliable and effective means of recording their rights in shares as well which was approved by the board as with the opportunity to freely dispose of their shares in a non-onerous manner. of directors. 1.4.1 Shareholders should be 1. The quality and reliability Observed 2. Matters related provided with reliable of the work carried out to the said policy(ies) were and effective means of recording by the company’s registrar considered at meetings their rights in shares in keeping the register of the board of directors held as well as with the opportunity of securities owners meet during the reporting period. to freely dispose of their shares the needs of the company and its 2.1.5 The board of directors should 1. The board of directors plays Observed in a non-onerous manner. shareholders. play a key role in prevention, a key role in prevention, detection 2.1 The board of directors should be in charge of strategic management of the company, determine major principles of and approaches detection and resolution and resolution of internal to creation of a risk management and internal control system, monitor the activity of the company’s executive bodies, and carry of internal conflicts between conflicts. out other key functions. the company’s bodies, 2. The company has established shareholders and employees. a system designed to identify 2.1.1 The board of directors 1. The board of directors has Partially observed In accordance with the current Charter transactions involving a conflict should be responsible the powers set forth in the charter of PAO Sovcomflot, the authority of interest and a system for decisions to appoint to appoint and remove members to form the sole executive body of measures aimed at resolving and remove executive bodies, of executive bodies and determine and early terminate its powers such conflicts. including in connection the terms and conditions is vested in the general meeting with their failure to properly of contracts with them. of shareholders - the Company’s sole 2.1.6 The board of directors should 1. The board of directors Observed perform their duties. The board 2. The board of directors shareholder (Art. 12 of the Charter); play a key role in procuring that has approved regulations of directors should also carry reviewed the report(s) of the sole the authority to form the collegiate the company is transparent, on information policy. out supervision to ensure executive body and members executive body and early terminate discloses information 2. The company has designated that the company’s executive of the collegiate executive its powers and to determine in full and in due time, persons responsible bodies act in accordance body on the implementation the remuneration and compensation and provides its shareholders for implementation with the approved development of the company’s strategy. for its members is vested with unhindered access to its of the information policy. strategy and main business in the Company’s Board of Directors documents. goals of the company. (Art. 12 of the Charter). 2.1.7 The board of directors should 1. The board of directors reviewed Observed The Board of Directors reviews monitor the company’s the company’s corporate reports from the Company’s corporate governance practices governance practices during executive bodies concerning and play a key role in its the reporting period. the implementation of the Company’s material corporate events. strategy on a regular basis in accordance with the requirements 2.2 The board of directors should be accountable to the company’s shareholders. of the Company’s Charter. 2.2.1 Information about the board 1. The company’s annual report Observed 2.1.2 The board of directors should 1. Items discussed at the board Observed of directors’ work should for the reporting period includes establish basic long-term of directors meetings during be disclosed and provided information on attendance targets of the company’s the reporting period included to the shareholders. of meetings of the board activity, evaluate and approve the progress in implementation of directors and committees its key performance indicators and updating of the strategy, by individual directors. and principal business goals, approval of the company’s 2. The annual report and evaluate and approve its financial and business plan contains information strategy and business plans (budget), as well as criteria on principal results of evaluation in respect of its principal areas and indicators (including of the work of the board of operations. intermediate indicators) of directors performed during of implementation the reporting period of the strategy and business plans of the company. 2.2.2 The chairman 1. The company has Observed of the board of directors must a transparent procedure, be available to communicate which enables its shareholders with the company’s to pose questions to the chairman shareholders. of the board of directors and express their positions on them.

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2.3 The board of directors should be an effective and professional governing body, which is able to exercise objective independent 2.4 The board of directors should include a sufficient number of independent directors. judgments and make decisions in the best interests of the company and its shareholders. 2.4.1 An independent director 1. During the reporting period Partially observed During the reporting period 2.3.1 Only persons 1. The procedure Observed should be a person who has all independent members the independent members with impeccable business for evaluating the performance sufficient professional skills, of the board of directors met all of the Board of Directors were and personal reputation of the board of directors experience and independence the criteria of independence set determined to be independent as well as knowledge, adopted in the company includes, to have his/her own position, out in recommendations 102-107 by the commission for selecting skills and experience but is not limited to, assessment is able to make objective of the Code or were determined candidates to the governing bodies necessary to make of the professional qualifications and bona fide judgments, to be independent by decision of companies with state participation decisions that fall within of the board members. free from the influence of the board of directors. and, subsequently, by the decision the competence of the board 2. In the reporting period of the executive bodies, made by the sole shareholder of directors and are required the board of directors (or any individual group at their election. for the effective performance its nominating committee) of shareholders or other of its functions should evaluated candidates to the board stakeholders. It should be be elected to the board of directors to determine noted that, under normal of directors. whether they have the necessary circumstances, a candidate experience, knowledge (or an elected member and business reputation, whether of the board of directors) there was any conflict of interest, may not be deemed etc. to be independent, if he/she is associated with the company, 2.3.2 Members of the company’s 1. In the case of each general Not observed Members its substantial shareholder, board of directors should be shareholders meeting (non-applicable) of the Company’s Board of Directors material counterparty, elected through a transparent with an agenda including are elected following a review competitor, or the government. procedure enabling the election of the board of direc- of the candidates by the commission the shareholders to obtain tors held during the reporting for selecting candidates 2.4.2 Candidates 1. During the reporting period Partially observed Independent members information about candidates period, the company presented to the governing bodies of companies to the board of directors should the board of directors (or its of the Company’s Board of Directors sufficient for them to the shareholders biographical with state participation, which enables be evaluated to determine nominating committee) formed are elected following a review to get an idea of their personal details of all candidates the shareholder to receive information whether they meet an opinion on the independence of the candidates by the commission and professional qualities. to the board of directors, about the candidates necessary the criteria of independence, of each candidate for selecting candidates the results of evaluation to get an idea of their personal with a review to determine to the board of directors to the governing bodies of companies of the candidates by the board and professional qualities. whether or not independent and submitted the relevant report with state participation, which enables of directors (or its nominating board members meet to the shareholders. the shareholder to receive information committee), information the independence criteria 2. The board of directors (or its about the candidates necessary on whether the candidates conducted on a regular basis. nominating committee) reviewed to get an idea of their personal meet the independence When carrying out such the independence of the current and professional qualities. criteria in accordance evaluation, substance shall take board members identified The criteria of independence with recommendations 102 - precedence over form. as independent directors are defined in the Regulations 107 of the Code, and the written in the company’s annual report on the Company’s Board of Directors consent of the candidates to be at least once during the reporting and are similar to those defined elected to the board of directors. period. in the CG Code. 3. The company has developed 2.3.3 The composition of the board 1. As part of the procedure Observed procedures determining which of directors should be balanced, of evaluating the work actions a board member in particular, in terms of the board of directors during is required to undertake of qualifications, experience, the reporting period, the board in the event that he/she ceases knowledge and business of directors reviewed its own to be independent, including skills of its members. needs in terms of professional an obligation to notify the board The board of directors qualifications, experience of directors to this effect should enjoy the confidence and business skills. in a timely manner. of the shareholders. 2.4.3 Independent directors should 1. Independent directors account Partially observed Prior to the decision by the sole 2.3.4 The membership of the board 1. As part of the procedure Not observed The sole shareholder of PAO account for at least one- for at least one-third of the total shareholder of PAO Sovcomflot of directors should enable of evaluating the work (non-applicable) Sovcomflot is the Russian Federation. third of all directors elected number of board members. to increase the number the board to organise of the board of directors during to the board of directors. of Board of Directors members, its activities in a most the reporting period, the board the ratio between their total number efficient way, in particular, of directors considered whether and the number of independent to form committees the number of members directors was observed. of the board of directors, of the board of directors met as well to enable substantial the needs of the company 2.4.4 Independent directors 1. Independent directors (who Observed minority shareholders and the interests of its should play a key role have no conflict of interest) carry of the company to elect shareholders. in preventing internal out a preliminary evaluation a candidate to the board conflicts in the company of the company’s material of directors for whom they and its performance of material corporate actions that could would vote. corporate actions. involve conflicts of interest and the results of this evaluation are presented to the board of directors.

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2.5 The chairman of the board of directors should help it carry out the functions assigned to the board in a most efficient manner. 2.6.3 Board members should have 1. Individual attendance Observed sufficient time to perform of meetings of the board 2.5.1 The chairman 1. The chairman of the board Partially observed Considering the fact that, their duties. of directors and committees of the board of directors of directors is an independent in accordance with Russian and the time devoted should be an independent director or the senior independent Government Resolution No. to preparation for meetings director or the senior director among the independent 738, the Chairman of the Board was taken into account when independent director among directors is identified. of Directors of the Company (in performing the procedure the company’s independent 2. The role, rights and duties which 100% of the shares are held of evaluating the board directors should be identified, of the chairman of the board by the Russian Federation) is charged of directors in the reporting who would coordinate work of directors (and, if applicable, with certain duties, including deciding period. of the independent directors the senior independent on the need to obtain voting directives 2. In accordance and liaise with the chairman director) are properly defined for the Board of Directors members with the company’s internal of the board of directors. in the company’s internal who are government appointees documents, board members documents. on the agenda items of the Board are required to notify the board not expressly specified in Russian of directors of their intention Government Resolution No. 738, to take a position in gov- a government appointee who has erning bodies of other entities sufficient knowledge and experience, (other than entities controlled taking into account the specifics by or affiliated with the company), of the Company’s activities, is elected as well as of such appointment. as Chairman of the Company’s Board of Directors. 2.6.4 All board members should 1. In accordance Observed The role, rights have equal opportunity with the company’s internal docu- and duties of the Chairman to access the company’s ments, board members have of the Board of Directors are defined documents and information. the right to access the company’s in the Regulations on the Board Newly elected board documents and make inquiries of Directors approved by decision members should be provided concerning the company of the Company’s sole shareholder. with sufficient information and entities under its control, about the company and the work and the executive bodies 2.5.2 The chairman of the board 1. The performance Observed of its board of directors as soon of the company are required of directors should ensure of the chairman of the board as practicable. to provide such information that the board meetings of directors was evaluated as part and documents. are held in a constructive of the procedure of evaluating 2. The company has a formalised atmosphere and that any the performance of the board introductory programme for newly items on the meeting of directors in the reporting elected board members. agenda are discussed freely. period. The chairman should also 2.7 Meetings of the board of directors, preparation for them, and participation of board members therein should ensure efficient work monitor fulfilment of decisions of the board. made by the board of directors. 2.7.1 Meetings of the board 1. The board of directors held Observed 2.5.3 The chairman of the board 1. The duty of the chairman Observed of directors should be held at least six meetings during of directors should take of the board of directors as needed, having regard the reporting year. the necessary measures to take measures to ensure that to the scope of the company’s to provide the board materials relating to the agenda activities and the goals set members in a timely manner of the board meeting are provided by the company for a specific with information required to the board members in a timely period. to make decisions on issues manner is set forth in the compa- on the agenda. ny’s internal documents. 2.7.2 The company’s internal 1. The company has approved Observed documents should establish an internal document establishing 2.6 Members of the board of directors should act in good faith and reasonably in the best interests of the company and its a procedure for preparing the procedure for preparing shareholders, being sufficiently informed, with due care and diligence. for and holding board meetings for and holding board meetings that enables the board which, inter alia, provides that 2.6.1 Board members should make 1. The company’s internal Observed members to prepare properly a notice of a meeting shall be decisions considering all documents establish that for such meetings. given, as a rule, at least 5 days available information, with no a member of the board before the date of the meeting. conflict of interest, treating of directors shall notify the board all shareholders equally, of directors if he/she has a conflict 2.7.3 The form of a meeting 1. The company’s charter Observed and in the context of normal of interest relating to any item of the board of directors should or internal documents provide business risks. on the agenda of the meeting be determined with due regard that the most important issues of the board of directors or its to the importance of the issues (according to the list provided committee before discussion on the agenda. The most in recommendation 168 of such item is commenced. important issues should be of the Code) shall be decided 2. The company’s internal decided at meetings held at meetings held in person. documents provide that a board in person. member shall abstain from voting on any issues in respect of which 2.7.4 Decisions on the most 1. The company’s charter Observed he/she has a conflict of interest. important issues relating provides that decisions 3. The company has established to the company’s activities on the most important issues a procedure enabling should be made at a meeting outlined in recommendation board members to receive, of the board by a qualified 170 of the Code shall be made at the expense of the company, majority vote or by a majority at a meeting of the board professional advice on issues vote of all elected board by a qualified majority of at least within their competence. members. three-fourths or a majority of all elected board members. 2.6.2 Rights and duties of board 1. The company has adopted Observed members should be clearly and published an internal stated and documented document that clearly defines in the company’s internal the rights and duties of board documents. members.

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2.8 The board of directors should form committees for preliminary consideration of the most important issues relating. 2.8.5 The composition 1. The committees Partially observed The Audit Committee to the company’s activities. of the committees should be of the board of directors and the HR and Compensation determined in such a way that are headed by independent Committee of the PAO Sovcomflot 2.8.1 An audit committee 1. The board of directors has Partially observed A majority of the Audit Committee it would allow a comprehensive directors. Board of Directors are headed comprised of independent formed an audit committee members are independent directors. discussion of issues being 2. Internal documents (policies) by independent directors. The Strategy directors should be formed composed entirely of independent The Committee is chaired considered on a preliminary of the company include Committee and the Committee for preliminary consideration directors. by an independent director. basis with due regard provisions that persons who for Innovative Development of matters related to control 2. The company’s internal The Regulations on the Audit for differing opinions. are not members of the audit and Technical Policy over the company’s financial documents define the tasks Committee of the PAO Sovcomflot committee, nominating committee of the PAO Sovcomflot Board and economic activities. of the audit committee, including, Board of Directors are in accordance and remuneration committee of Directors are headed by directors but not limited to, those set with the recommendations of the CG may attend their meetings only who are government appointees. out in recommendation 172 Code. at the invitation of their chairmen. The Regulations on Committees of the Code. provide that persons who 3. At least one member are not committee members may of the audit committee who attend their meetings only by decision is an independent director has of their chairmen. experience and knowledge in the preparation, analysis, 2.8.6 Chairmen of the committees 1. During the reporting period, Observed evaluation and audit of accounting should inform the board chairmen of the committees (financial) statements. of directors and its chairman reported on the work 4. Meetings of the audit of the work of their committees of their committees to the board committee were held at least once on a regular basis. of directors on a regular basis. per quarter during the reporting period. 2.9 The board of directors should ensure that the quality of its work and that of its committees and members is assessed. 2.8.2 A remuneration committee 1. The board of directors has Partially observed A majority of the HR and Compensation 2.9.1 Assessment of the quality 1. Self-assessment or external Observed consisting of independent formed a remuneration committee Committee members are independent of the board’s work should evaluation of the board’s work directors and chaired composed entirely of independent directors. be aimed at defining how conducted in the reporting by an independent director directors. An independent director was elected efficiently the board period included evaluation other than the chairman 2. The chairman as Chairman of the Committee. of directors, its committees of the work of the committees, of the board of directors should of the remuneration committee The Regulations and members work individual members of the board be formed for preliminary is an independent director other on the HR and Compensation and whether their work meets and the board of directors consideration of matters than the chairman of the board Committee of the PAO Sovcomflot the needs of the company’s as a whole. related to the development of directors. Board of Directors are in accordance development, revitalizing 2. The results of self-assessment of efficient and transparent 3. The company’s internal with the recommendations of the CG the work of the board or external evaluation remuneration practices. documents define the tasks Code. and identifying areas where of the board of directors of the remuneration committee, it might be improved. conducted during the reporting including, but not limited to, those period were discussed set out in recommendation 180 at a meeting of the board of the Code. of directors held in person. 2.8.3 A nominating (appointments, 1. The board of directors Observed The tasks of the nominating committee 2.9.2 The work of the board 1. The company retained a third- Partially observed Self-assessment of the board’s work human resources) committee has formed a nominating are performed in the Company of directors, its committees party entity (consultant) to carry is conducted on an annual basis. with a majority of its committee with a majority of its by the HR and Compensation and board members should be out an independent evaluation External evaluation of the board’s members being independent members being independent Committee of the PAO Sovcomflot evaluated on a regular basis, of the quality of the board’s work work is scheduled for 2020. directors should be formed directors (or its functions Board of Directors. at least once a year. To carry at least once during the last three for preliminary consideration specified in recommendation out an independent evaluation reporting periods. of matters relating to human 186 of the Code are delegated of the quality of the board resources planning (succession to another committee). of directors’ work, a third-party planning), professional 2. The company’s internal entity (consultant) should be composition and efficiency documents define the tasks retained at least once every of the board of directors. of the nominating committee three years. (or a relevant committee 3.1 The company’s corporate secretary should be responsible for efficient day-to-day relations with its shareholders, coordination with combined functions), of the company’s actions to protect the rights and interests of its shareholders, and supporting the work of its board of directors. including, but not limited to, those set out in recommendation 186 3.1.1 The corporate secretary should 1. The company has adopted Partially observed Regulations on the Corporate of the Code. have knowledge, experience, and disclosed an internal Secretary of PAO Sovcomflot and qualifications sufficient document – regulations were approved by the Board 2.8.4 Taking into account 1. In the reporting period Observed for performance of his/her on the corporate secretary. of Directors decision on 11 April the company’s scope the company’s board of directors duties, as well as an impeccable 2. The company’s website 2017. The Company’s Corporate of activities and related risk reviewed the composition reputation and should enjoy and annual report pro- Secretary was appointed by the Board level, the board of directors of its committees for alignment the trust of the shareholders. vide biographical details of Directors decision on 31 July 2017. should make sure that with the tasks of the board of the corporate secretary the composition of its and the company’s goals. with the same level of detail committees is fully aligned Additional committees have as for members of the board to the company’s goals. either been set up or not deemed of directors and executive Additional committees necessary. managers of the company. (strategy committee, corporate governance committee, ethics 3.1.2 The corporate secretary should 1. The board of directors approves Observed committee, risk management be sufficiently independent the appointment/removal committee, budget committee, of the company’s executive of and additional remuneration health, safety and environment bodies and have the powers payable to the corporate committee, etc.) should be and resources required secretary. either set up or not deemed to perform his/her tasks. necessary.

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4.1 The level of remuneration paid by the company should be sufficient to attract, motivate and retain persons with the necessary 4.2 The system of remuneration for board members should ensure that the financial interests of the directors are aligned skills and qualifications. The remuneration of members of the board of directors, the executive bodies and other key managers with the long-term financial interests of shareholders. of the company should be paid in accordance with the remuneration policy adopted in the company. 4.2.1 The company should pay 1. A fixed annual fee was the only Observed 4.1.1 The level of remuneration paid 1. The company has adopted Observed a fixed annual fee to members form of monetary remuneration by the company to members an internal document (documents) of the board of directors. of the board members of the board of directors, - remuneration policy (policies) The company should not pay for their work on the board during executive bodies and other for members of the board a fee for attending individual the reporting period. key managers should be of directors, executive bodies meetings of the board sufficient to motivate and other key managers, which of directors or its committees. them to work efficiently clearly define(s) approaches The company should and enable the company to remuneration for these not use any forms of short- to attract and retain persons. term incentives or additional knowledgeable and skilled financial incentives specialists. The company for members of the board should avoid setting of directors. the level of remuneration any higher than necessary, 4.2.2 Long-term ownership of shares 1. If the company’s remuneration Not observed The Regulations or creating an unjustifiably in the company should policy (policies) being its internal (not applicable) on the Payment of Compensation wide gap between contribute most to aligning document(s) provides (provide) and the Reimbursement of Expenses the levels of remuneration paid financial interests of board for allotment of company to Members of the PAO Sovcomflot to the above persons and other members with the long-term shares to members of the board Board of Directors provide for payment employees of the company. interests of shareholders. of directors, clear rules regarding of compensation to Board members However, the company ownership of shares by board in monetary form. 4.1.2 The company’s remuneration 1. During the reporting period Observed should not make the right members, aimed at promoting The sole shareholder of PAO policy should be developed the remuneration committee to dispose of shares dependent long-term ownership Sovcomflot is the Russian Federation. by the remuneration committee reviewed the remuneration on the achievement of certain of such shares, are established and approved by the board policy (policies) and its (their) performance indicators, and disclosed. of directors. The board implementation practices and board members should of directors, with the support and, where necessary, made not take part in option of its remuneration committee, appropriate recommendations programmes. should monitor introduction to the board of directors. and implementation 4.2.3 The company should 1. The company does Observed of the remuneration policy not provide for any additional not provide for any additional in the company and if necessary allowance or compensation allowance or compensation review and amend the same. in the event of early in the event of early dismissal dismissal of board members of board members in connection 4.1.3 The company’s remuneration 1. The company’s remuneration Observed in connection with a change with a change of control policy should contain policy (policies) contains (contain) of control over the company over the company or other transparent mechanisms transparent mechanisms or other circumstances. circumstances. to determine the amount to determine the amount of remuneration for members of remuneration for members 4.3 The system of remuneration for members of the executive bodies and other key managers of the company should provide that of the board of directors, of the board of directors, their remuneration is dependent on the company’s performance results and their personal contributions to the achievement the executive bodies and other the executive bodies and other thereof. key managers of the company, key managers of the company, 4.3.1 Remuneration for members 1. During the reporting period Observed as well as to regulate all as well as to regulate all of the executive bodies the amount of variable portion types of payments, benefits types of payments, benefits and other key managers of remuneration for members and privileges provided and privileges provided of the company should be set of the executive bodies and other to the above persons. to the above persons. so as to ensure a reasonable key managers of the company 4.1.4 The company should develop 1. The remuneration policy Observed and justified ratio between its was determined using annual a policy on reimbursement (policies) or other internal fixed and variable portions that performance indicators approved (compensation) of expenses documents of the company is dependent on the company’s by the board of directors. containing a list of reimbursable establishes (establish) performance results 2. During the latest evaluation expenses and specifying service the rules for reimbursing expenses and their personal (individual) of the remuneration system levels to which members to members of the board contributions to the end result. for members of the executive of the board of directors, of directors, the executive bodies and other key managers the executive bodies and other bodies and other key managers of the company, the board key managers of the company of the company. of directors (the remuneration may be entitled. This policy committee) made sure can be made an integral part that the company used of the company’s remuneration an effective ratio between policy. the fixed and variable portions of remuneration. 3. The company has in place a procedure ensuring that any bonuses wrongfully obtained by members of executive bodies and other key managers are repaid to the company.

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4.3.2 The company should introduce 1. The company has introduced Not observed The Regulations on Long-Term 5.2 The company should organise internal audits for regular independent evaluation of the reliability and efficiency of its risk a long-term incentive a long-term incentive (non-applicable) Motivation approved by the Company’s management and internal control system and corporate governance practices. programme for members programme for members Board of Directors do not provide of the executive bodies of the executive bodies and other for the use of shares or other financial 5.2.1 The company should create 1. To carry out internal audits, Observed and other key managers key managers of the company instruments, as 100% of the shares a separate structural division the company has created of the company involving its involving the company’s shares are held by the sole shareholder, or retain an independent third- a separate structural division, shares (or options or other (financial instruments based the Russian Federation. party organisation to carry out which functionally reports derivative financial instruments, on the company’s shares). internal audits. The internal to the board of directors or its the underlying asset for which 2. The long-term incentive audit division should have audit committee, or retained are the company’s shares). programme for members separate lines of functional an independent third-party of the executive bodies and administrative reporting. organisation with the same line and other key managers Functionally, the internal of reporting. of the company provides that audit division should report the right to dispose of shares to the board of directors. and other financial instruments 5.2.2 The internal audit division 1. The efficiency of the internal Observed used in the programme shall should evaluate the efficiency control and risk management arise no earlier than three of the internal control system, system was evaluated as part years from the date when the risk management system of internal audit conducted during such shares were provided. and the corporate governance the reporting period. In addition, the right to dispose system. The company should 2. The company applies generally of the same is made conditional apply generally accepted accepted approaches to internal on the achievement standards of internal auditing. control and risk management. by the company of certain performance indicators. 6.1 The company and its activities should be transparent to its shareholders, investors, and other stakeholders. 4.3.3 The amount of severance pay 1. The amount of severance Observed 6.1.1 The company should develop 1. The board of directors Observed (golden parachute) payable pay (golden parachute) and implement an information has approved the company’s by the company to members paid by the company during policy ensuring the efficient information policy, which was of executive bodies or other key the reporting period in the event exchange of information developed by taking into account managers in the event of early of early termination of members by the company, its recommendations of the Code. termination at the initiative of executive bodies or other shareholders, investors, 2. The board of directors (or one of the company, provided key managers at the initiative and other stakeholders. of its committees) considered that there have been no bad of the company, provided matters related to the company’s faith actions on their part, that there have been not bad compliance with its information should not exceed twice faith action on their part, did policy at least once during the value of the fixed portion not exceed twice the value the reporting period. of the annual remuneration. of the fixed portion of the annual remuneration. 6.1.2 The company should 1. The company discloses Partially observed In view of the fact that disclose information on its information on its corporate the sole shareholder of PAO 5.1 The Company should create an efficient risk management and internal control system designed to provide reasonable assurance corporate governance system governance system Sovcomflot it the State (Russian that the company’s goals will be achieved. and practices, including detailed and the general principles Federation), the Company does information on compliance of corporate governance applied not publish a memorandum setting 5.1.1 The board of directors should 1. The functions of various Observed with the principles in the company, in particular, out the plans of the controlling person determine the principles management bodies and divisions and recommendations on the company’s website. in respect of corporate governance of and approaches to organising of the company within the risk of the Code. 2. The company discloses in the Company. the risk management management and internal control information on the composition and internal control system system are clearly defined of its executive bodies in the company. in the company’s internal and board of directors, documents/relevant policy independence of the board approved by the board members and their membership of directors. in committees of the board 5.1.2 The company’s executive 1. The company’s executive Observed of directors (as defined in the Code). bodies should ensure bodies ensured the distribution 3. If there is a person that controls the establishment of functions and authority in risk the company, the company and continuing operation management and internal control publishes a memorandum setting of an efficient risk management between managers (heads) out the plans of the controlling and internal control system of divisions and departments person in respect of corporate in the company. accountable to them. governance in the company. 5.1.3 The company’s risk 1. The company has approved Observed management and internal an anti-corruption policy. control system should give 2. The company has organised an objective, fair and clear view an easy way to inform the board of the current state and future of directors or its audit committee prospects of the company of any breaches of legislation, and ensure integrity internal procedures and the ethics and transparency of its accounts code of the company. and reports, and reasonableness and acceptability of risks being assumed by the company. 5.1.4 The board of directors should 1. During the reporting Observed take the necessary measures period the board of directors to ensure that the existing or its audit committee evaluated risk management and internal the efficiency of the risk control system of the company management and internal control is consistent with the principles system of the company. and approaches to its Information about the main results organisation defined by the board of this evaluation is included of directors and that it operates in the company’s annual report. efficiently.

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6.2 The company should disclose full, up-to-date and reliable information about the company in good time to enable its shareholders 7.1 Any actions that will or may materially affect the company’s share capital structure and its financial position and, accordingly, and investors to make informed decisions. the position of its shareholders (“material corporate actions”) should be taken on fair terms ensuring that the rights and interests of the shareholders as well as other stakeholders are observed. 6.2.1 The company should disclose 1. The company’s information Observed information in accordance policy defines approaches 7.1.1 Material corporate actions 1. The company’s charter contains Partially observed The Company’s CG Code defines with the principles of regularity, and criteria for identifying are deemed to include a list of transactions or other material corporate actions (see its consistency and timeliness, information that may reorganisation of the company, actions that constitute material Article 7). as well as accessibility, have a significant impact acquisition of 30 or more corporate actions and the criteria According to the current Charter reliability, completeness on the valuation of the company percent of its voting shares for identifying them. Decisions of the Company, material corporate and comparability. and the value of its securities (takeover), making major on material corporate actions actions are approved by the General and on procedures ensuring transactions by the company, fall within the competence Meeting of Shareholders (the sole the timely disclosure of such increasing or reducing its share of the board of directors. In cases shareholder) or the Board of Directors information. capital, listing and delisting where the law expressly places of the Company depending 2. If the company’s securities of its shares, as well as other these corporate actions within on the competence established by laws are traded on foreign organised actions which might result the competence of the general and the Company’s Charter. All issues markets, disclosure of material in material changes in the rights shareholders meeting, the board that must be submitted to the General information in the Russian of shareholders or infringement of directors provides appro- Meeting of Shareholders are subject Federation and in such markets of their interests. priate recommendations to preliminary consideration is synchronous and equivalent The company’s charter should to the shareholders. by the Board of Directors (Article 12 during the year. contain a list of (criteria 2. According to the company’s of the Company’s Charter). 3. If foreign shareholders hold for identifying) transactions charter, material corporate a substantial number of company or other actions that constitute actions include reorganisation shares, disclosures during material corporate actions of the company, acquisition the reporting year were made and provide that decisions of 30 or more per-cent not only in Russian, but also in one on such actions shall fall within of its voting shares (takeover), of the most common foreign the competence of the board entering by the company into languages. of directors. major transactions, increasing or decreasing its share capital, 6.2.2 The company should avoid 1. During the reporting period Observed and listing and delisting of its using a formalistic approach the company disclosed the annual shares. to information disclosure and semi-annual financial and disclose material statements prepared under IFRS. 7.1.2 The board of directors should 1. The company has in place Observed information about its activities The annual report of the company play a key role in passing a procedure whereby independent even if disclosure of such for the reporting period included resolutions or making directors can communicate information is not required the annual financial statements recommendations relating their opinions on material by legislation. prepared under IFRS, together to material corporate corporate actions before with the auditor’s report. actions, relying on opinions their approval. 2. The company discloses full of the company’s independent information on the company’s directors. capital structure in the annual report and on the company’s 7.1.3 When taking material corporate 1. Taking into account specific Observed website in accordance actions which would affect features of the company’s with recommendation 290 rights and legitimate interests operations, its charter sets of the Code. of shareholders, equal terms lower criteria for recognizing and conditions should be the company’s transactions 6.2.3 The annual report, as one 1. The company’s annual report Observed ensured for all shareholders; if as material corporate actions than of the most important tools contains information on the key statutory mechanisms designed the minimum criteria set by law. of information exchange aspects of its operating activities to protect shareholder 2. During the reporting period with shareholders and other and financial results. rights prove insufficient, all material corporate actions stakeholders, should contain 2. The company’s annual additional measures should passed an approval process before information making it possible report contains infor-mation be taken to protect the rights their execution. to assess the company’s about the environmental and legitimate interests performance results and social aspects of the company’s shareholders. for the year. of the company’s activities. In such instances, the company should not only seek to comply 6.3 The company should provide information and documents requested by its shareholders in accordance with the principle of equal with the formal requirements and unhindered accessibility. of law, but should also the guided by the principles 6.3.1 The company should provide 1. The company’s Observed of corporate governance set information and documents information policy provides out in the Code. requested by its shareholders a non-burdensome procedure in accordance with the principle for giving its shareholders 7.2 The company should have in place a procedure for taking material corporate actions that enables its shareholders to receive full of equal and unhindered access to information, including information about such actions in due time and influence them, and that also guarantees that the shareholder rights are observed accessibility. information about legal entities and duly protected in the course of taking such actions. controlled by the company, at the request of shareholders. 7.2.1 Information about material 1. During the reporting period Observed corporate actions should the company disclosed information 6.3.2 When providing information 1. During the reporting Observed be disclosed together about its material corporate actions to its shareholders, period the company did with explanations concerning in due time and in detail, including the company should maintain not refuse shareholder requests reasons for, conditions the reasons for and the timing a reasonable balance between for information or such refusals and consequences of such of such actions. the interests of individual were justified. actions. shareholders and its own 2. In cases determined interests, mindful of its by the company’s information interest in keeping important policy, shareholders business information that may are notified of the confidential have a material impact on its nature of information competitiveness confidential. and assume an obligation to keep it confidential.

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No. Principles of corporate Criteria for assessing compliance Status of compliance Explanations for deviations Type of risk Risk factors Risk mitigation measures governance with the principle of corporate with the principle from criteria for assessing governance of corporate compliance with the principle Operational risks Mechanical faults and damage to vessels; Improve technical management systems and procedures, governance of corporate governance maritime casualties implement an across-the-board critical analysis of the reasons for breakages and emergencies, increase the professional level 7.2.2 Rules and procedures 1. The company’s internal Observed of fleet personnel and onshore support in relation to material corporate documents provide a procedure actions taken by the company for retaining an independent Delays and defaults on obligations by main Conclude contracts with reputable and highly reliable should be set out in its internal appraiser to value assets being counterparties counterparties documents. disposed of or acquired in a major Suspension of activities owing to labour disputes Promptly consider the legal interests of Group employees transaction or an interested party and introduce a culture which promotes the joint resolution transaction. of issues as they arise 2. The company’s internal documents provide a procedure Dependence of the Group on hiring and retaining Improve HR policies, create a high-performing team united for retaining an independent qualified personnel by common goals and effective material and moral incentives appraiser to estimate the acquisition and redemption Country risks Adverse changes in the political and economic Draft anti-crisis action plans if adverse scenarios arise value of company shares. situation in countries and regions where 3. The company’s internal the Group operates documents provide for an expanded list of grounds Negative impact of restrictions imposed against Diversify the customer base, project and business portfolio, on which members of the board Russia by a number of Western countries and sources of Group financing of directors and other persons Pirate attacks on the Group’s vessels Organise security for the Group’s vessels in dangerous regions, referred to in respective laws ramp up cooperation with respective international and national are deemed to be interested authorities, introduce and adjust the rules to be applied by vessels parties in transactions during crises of the company. Financial risks Changes in foreign currency exchange rates, Use foreign exchange hedging instruments which have an adverse impact on the Group’s expenses and income 2. SOVCOMFLOT GROUP – KEY RISKS Increased interest payments on current loan Use interest-rate risk hedging instruments, diversify sources obligations of borrowing Exceeding of an acceptable debt burden Improve the procedures for ensuring the optimal structure Type of risk Risk factors Risk mitigation measures on the Group’s balance sheet of assets and liabilities, in conjunction with an operational analysis of changes in the financial environment Economic risks Changes in freight and hire rates Draft and approve the Development Strategy of the Group on the international freight market and regularly update the document in connection with changes Public health threats Public health threats such as coronavirus (COVID- The Group is continuously monitoring public health threats in market conditions and the external environment; identify 19) or other epidemics or pandemics could affect and takes necessary steps to protect the health and safety of its the optimal ratio of revenues from long-term and spot contracts the operations of the Group, the operations seafarers and shore-based staff, and minimise any disruption in its of the Group’s customers, suppliers and shipyards operations Seasonal and regional changes in tonnage supply Monitor global freight markets to make timely decisions and demand on the optimal distribution of the fleet Strong competition from other carriers Leverage the Group’s accumulated experience in the operation of different types of vessels, taking into account customer requirements Arrival of new cargo transportation, loading, Build and commission specialised state-of-the-art vessels; promptly storage and warehousing technologies sell obsolete fleet and resulting changes in technological 3. PARTICIPATION OF PAO SOVCOMFLOT IN COMMERCIAL AND NON-PROFIT ORGANISATIONS requirements in the field of maritime transport Quantitative and qualitative changes in global Diversify the Group’s activities and break into new, promising fleet composition segments Information on participation of PAO Sovcomflot in commercial and non-profit organisations as at 31 December 2019. Environmental risks Accidents having negative environmental impacts Identify significant environmental aspects of the Group’s activities, plan and implement required environmental measures, monitor and analyse their sufficiency Company’s name Country Equity stake Core/planned activities of incorporation (direct Impact on the atmosphere of polluting Implement integrated management and control systems based or indirect), % emissions, and on the oceans from the dumping on international safety and quality standards of wastewater and different types of garbage PAO Novoship and its subsidiaries Russia 89,4563 Ownership and control of Group companies Regulatory and legal Changes in international legislation and shipping Monitor changes in shipping industry regulations, be proactive SCF Tankers Limited and its subsidiaries Liberia 100 Ownership and management of ship-owning risks industry regulations, customs and tax laws, in response to such changes, and maintain a constructive dialogue companies licensing, environmental protection, etc. with regulatory authorities SCF Overseas Holding Limited and its Cyprus 100 Ownership and management of ship-owning The introduction of stringent requirements Draft and implement best-practice design and technological subsidiaries companies on vessels by leading classification societies, solutions that meet current and potential future requirements Intrigue Shipping Limited and its subsidiaries Cyprus 100 Ownership and management of ship-owning as well as international oil and trading companies companies Seizure of the Group’s vessels, in respect of which Monitor the likelihood of claims and other legal encumbrances OOO SCF Arctic Russia 100 Ownership and management of ship-owning maritime liens or maritime claims may arise in respect of the Group’s vessels; proactively respond to potential companies actions in this area OOO SCF Varandey Russia 100 Ownership and operation of vessels Inadequate insurance coverage of the Group’s Insure the Group fleet with leading international and Russian vessels companies OOO SCF GEO Russia 100 Ownership and operation of vessels OOO SCF Shelf Russia 100 Ownership and operation of vessels ООО SCF Prirazlomnoye Russia 100 Ownership and operation of vessels ООО SCF Atlantic Russia 100 Ownership and operation of vessels OOO SCF Novy Port Russia 100 Ownership and operation of vessels SMART LNG, LLC Russia 50 Ownership and operation of vessels OOO SCF LNG Shipping Russia 100 Ownership and operation of vessels

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Company’s name Country Equity stake Core/planned activities 2. Supplementary Agreement No. 7 dated 29 December 2018 of incorporation (direct to the Contract dated 29 June 2012 between PAO Sovcomflot (the or indirect), % «Customer») and OOO SCF Arctic (the «Contractor») amending OOO SCF Eco Russia 100 Ownership and operation of vessels Clause 5.1 of the Contract, under which the monthly cost of works Sovcomflot Bulk Shipping Inc. and its Liberia 100 Ownership and management of ship-owning under the Contract shall amount to RUB 4,438,000 (four million four subsidiaries companies hundred thirty-eight thousand roubles) plus VAT at the rate stipulated by Russian legislation. Sovcomflot (UK) Ltd. United Kingdom 100 Ship agency services

Sovcomflot (Cyprus) Limited Cyprus 100 Accounting, treasury and financial consulting All rights and obligations of the parties not affected by the said SCF Management Services (Cyprus) Ltd Cyprus 100 Technical management of ships Supplementary Agreement shall remain unchanged and the parties shall OOO SCF Management Services (St. Russia 100 Technical management of ships be governed by the Contract taking into account the said Supplementary Petersburg) Agreement. OOO SCF Management Services (Novorossiysk) Russia 100 Technical management of ships Supplementary Agreement No. 7 to the Contract dated 29 June 2012 SCF Management Services (Dubai) Ltd. UAE 100 Management services for ship-owning companies, technical and commercial management of ships entered into force upon signature and applies to the relations between the Parties as from 1 January 2019. Sovcomflot Training Centre Russia 100 Professional training and development of marine and river transport specialists 3. Supplementary Agreement No. 4 dated 28 March 2019 to the Sublease SCF Capital Designated Activity Company Ireland 100 Financing activities Agreement dated 10 December 2015 between PAO Sovcomflot (the SCF Marpetrol S.A. Spain 100 The company is inactive «Lessor») and OOO SCF GEO (the «Lessee»), under which the parties Sovchart S.A. Switzerland 100 The company is inactive agreed to extend the lease of the Premises and consider the Sublease Agreement extended for the period from 1 April 2019 to 29 February 2020 on the previous terms.

In all matters not covered by the said Supplementary Agreement the Parties shall be governed by the terms of the Sublease Agreement 4. MAJOR AND INTERESTED-PARTY TRANSACTIONS and current legislation of the Russian Federation.

Supplementary Agreement No. 4 to the Sublease Agreement dated 10 PAO Sovcomflot did • a) Information on the interested-party transactions concluded December 2015 entered into force upon signature and applies to the legal not conclude major by the Company during the reporting year, including a list relations between the Parties as from 1 April 2019. transactions in 2019. of the transactions concluded by the Company during the reporting During the reporting year which are considered interested-party transactions in accordance period the Company made with the Federal Law «On Joint-Stock Companies», indicating three interested-party an interested party (parties) in each transaction, essential terms and the Company’s management body which passed the decision transactions. 5. INFORMATION ON LITIGATIONS INVOLVING PAO on approval of the transaction. Interested-party SOVCOMFLOT transactions made • b) Information on the major transactions concluded by the Company during the reporting year, including a list of the transactions concluded by the Company during As a global shipping company, the Company operates in various jurisdictions the reporting period by the Company during the reporting year which are considered major transactions in accordance with the Federal Law «On Joint-Stock and is involved in court/arbitration proceedings relating to cargo transportation that do not require by sea. The Company’s third-party liability is, as a rule, insured with international consent or approval Companies» and other transactions which are subject to the pro-cedure for approving major transactions in accordance with the Company’s mutual insurance clubs, which assist the Company in the settlement of court/ of the Company’s arbitration disputes. management bodies Charter, indicating essential terms of each transaction and the Company’s under the provisions management body which passed the decision on approval of the transaction. In addition, in carrying out its activities the Company is governed of Federal Law “On Joint- by the requirements of anti-corruption laws and the highest corporate Stock Companies” which 1. Supplementary Agreement No. 1 dated 28 January 2019 to the Premises and ethical standards, the principles of fair and faithful conduct of business, entered into force on 1 and expects compliance with such standards from its business partners. January 2017. Sublease Agreement dated 30 March 2018 between OOO SCF Management Services (St. Petersburg) (the «Lessor») and PAO Sovcomflot (the «Subles-see») amending Clause 5.1. of the Agreement, As part of the policies and procedures applied by the Company to counter under which the monthly rent for the subleased premises shall amount fraud and corruption in any form, during the period between 2005 and 2007 to RUB 17,400.00 (seventeen thousand four hundred roubles) plus VAT the Company initiated certain legal proceedings. In particular, in late 2005 as stipulated by Russian legislation. the Group investigated a number of transactions which involved the former management of Novoship (UK) Ltd (“NOUK”). NOUK and its subsidiaries In all other matters not covered by the said Supplementary Agreement filed claims at the Commercial Court in London in December 2006. Judgment the parties shall be guided by the provisions of Premises Sublease was handed down on 14 December 2012. The Group was initially successful Agreement dated 30 March 2018. on all claims in the court of first instance, but after appeal unsuccessful on some claims against certain defendants. In 2014 those defendants have indicated an intention to pursue the Group for damages in respect of $90 Supplementary Agreement No. 1 to the Premises Sublease Agreement million of security provided during the litigation. No claim has yet been filed dated 30 March 2018 entered into force upon signature and applies for damages. to the relations between the Parties which arose since 1 January 2019.

PAO «Sovcomflot» 147 About Strategy Operating Corporate Share capital and profit Sustainable 2019 Annual report Group results governance distribution development Annexes

On 23 April 2018, the Dorogomilovo Court of Moscow adjudged Yuri Nikitin, No Subject Order Shareholder’s directives Results of implementation Dmitry Skarga and TagirIzmaylov guilty of having committed a number 5 On introducing a system Sub-clause 5, Clause 1 of List Russian Government 1. Meeting of the Board of Directors of crimes during the period 2000-2005 and causing damage to the Group of paying bonuses of Orders of the President Directives No. 2303p-P13 dated 19 May 2015 (Minutes No. 144); amounting to over $300 million. The guilt of the accused for the crimes charged to managers based on key of the Russian Federation No. dated 16 April 2015 2. Meeting of the Board of Directors was fully proved during the trial and the accused were sentenced to long performance indicators Pr-2821 dated dated 10 December 2019 (Minutes of their activity, considering 5 December 2014 No. 187); terms of imprisonment. In addition, the property of the convicted is subject the need to reduce 3. Information is posted on the ID to confiscation. operating expenses Portal. (expenditures) by at least 2-3 percent per annum After reviewing the appeals filed by the convicted persons, on 2 April 2019 the Moscow City Court issued an appellate ruling upholding the sentence 6 On including an integral Sub-paragraph b, Paragraph Russian Government 1. Meeting of the Board of Directors key performance indicator 2, Section 2 of Minutes No. 2 Directives No. 1472p-P13 dated 25 August 2016 (Minutes No. imposed by the Dorogomilovo Court of Moscow on 23 April 2018. The sentence of innovative activities of the meeting of the Presidium dated 3 March 2016 156); has entered into legal force. in the list of key of the Russian Presidential 2. Meeting of the Board of Directors performance indicators Council for Economic dated 10 December 2019 (Minutes of the long-term Modernisation and Innovative No. 187); Investigation into other illegal acts by Yuri Nikitin, Dmitry Skarga development programme Development dated 3. Information is posted on the ID and TagirIzmaylov against SCF Group companies, which have not yet been 17 April 2015 Portal. subjected to judicial review, continues. The Company is taking all necessary 7 On developing Clause 1 of Russian Presidential Russian Government 1. Meeting of the Board of Directors actions to protect its interests. and approving Order No. Pr-3013 dated Directives No. 3984p-P13 dated 7 August 2015 (Minutes No. a list of internal regulatory 27 December 2014 dated 24 June 2015 127); documents governing 2. Information is posted on the ID the JSC's activities Portal. 8 On changing the structure Clause 3 of Russian Presidential Russian Government 1. Meeting of the Board of Directors 6. INFORMATION ON THE RESULTS OF IMPLEMENTING ORDERS OF THE RUSSIAN PRESIDENT of the JSC's annual report Order No. Pr-3013 dated Directives No. 2007p-P13 dated 19 May 2015 (Minutes No. 144); 27 December 2014 dated 6 April 2015 2. Meeting of the Board of Directors AND THE RUSSIAN GOVERNMENT dated 22 September 2015 (Minutes No. 148); 3. Information is posted on the ID Portal. No Subject Order Shareholder’s directives Results of implementation 9 On phased replacement Russian Government Orders Russian Government 1. Meeting of the Board of Directors 1 On implementing Russian Government Order No. Russian Government 1. Meeting of the PAO Sovcomflot of the procurement No. DMP9-87pr dated 25 Directives No. 1346p-P13 dated 7 April 2015 (Minutes No. 143); the Corporate Governance ISh-P13-5859 dated Directives No. 1113p-P13 Board of Directors dated 30 of foreign products November 2013, No. AD-P0- dated 5 March 2015 2. Meeting of the Board of Directors Code 31July 2014 dated 26 February 2015 September 2014 (Minutes No. 138); (work, services) 9176 dated 12 December 2014 dated 10 December 2019 (Minutes (Russian Government Order 2. Meeting of the PAO Sovcomflot with the procurement and No. ISh-P13-1419 dated No. 187); No. ISh-P13-5859 dated Board of Directors dated 9 April 2015 of Russian products 5 March 2015 3. Information is posted on the ID 31July 2014); (Minutes No. 143); (work, services) Portal. Russian Government 3. Meeting of the PAO Sovcomflot equivalent in terms Directives No. 5667p-P13 Board of Directors dated of technical characteristics dated 2 September 2014 10 November 2015 (Minutes No. 149); and consumer attributes 4. Meeting of the PAO Sovcomflot Board of Directors dated 10 April 2018 10 On implementation Paragraph 4, Sub-clause c, Russian Government 1. Meeting of the Board of Directors (Minutes No. 171); of non-core assets disposal Clause 2 of Russian Presidential Directives No. 6604p-P13 dated 31 October 2017 (Minutes No. 5. Information is posted programmes Decree No. 596 dated 7 May dated 18 September 2017 167); on the Interdepartmental Portal 2012, Russian Government 2. Meeting of the Board of Directors for State Property Management Order No. 894-r dated dated 31 January 2018 (Minutes No. (hereinafter referred to as the «ID 10 May 2017 169); Portal»). 3. Meeting of the Board of Directors dated 10 December 2019 (Minutes 2 On approval Sub-clauses 32, 33 and 34, Russian Government 1. Meeting of the Board of Directors No. 187); and audit of the Long-Term Clause 1 of List of Orders Directives No. 5667p-P13 dated 30 September 2014 (Minutes 3. Information is posted on the ID Development Programme of the President of the Russian dated 2 September 2014 No. 138); Portal. Federation No. Pr-3086 dated 2. Meeting of the Board of Directors 27 December 2013 dated 19 November 2014 (Minutes 11 On ensuring Clause 1 of List of Orders Russian Government 1. Meeting of the Board of Directors No. 139); the establishment of unified of the President of the Russian Directives No. 5110p-P13 dated 9 September 2014 (Minutes No. 3. Meeting of the Board of Directors treasures of parent, Federation No. Pr-1032 dated dated 8 August 2014 and No. 137); dated 10 December 2019 (Minutes subsidiary and affiliated 7 May 2014 1796p-P13 dated 2. Meeting of the Board of Directors No. 187); entities 26 March 2015 dated 19 May 2015 (Minutes No. 144); 4. Information is posted on the ID 3. Information is posted on the ID Portal. Portal. 3 On including the main Sub-clause b, Clause 2 of List Russian Government 1. Meeting of the Board of Directors 12 On increasing labour Clause 6, Section 2 of the action Russian Government 1. Meeting of the Board of Directors parameters of requirements of Orders of the President Directives No. 4955p-P13 dated 19 November 2014 (Minutes productivity, establishing plan approved by Russian Directives No. 73899p-P13 dated 10 December 2014 (Minutes for labour resources of the Russian Federation No. dated 17 July 2014 No. 139); and modernising highly Government Order No. 1250-r dated 31 October 2014 No. 140); in the long-term Pr-1627 dated 1 July 2014 2. Meeting of the Board of Directors productive working places dated 9 July 2014 2. Meeting of the Board of Directors development programme, dated 10 December 2019 (Minutes dated 10 December 2019 (Minutes including for engineering No. 187); No. 187); and technical professions, 3. Information is posted on the ID 3. Information is posted on the ID necessary to carry out Portal. Portal. the main activities of the programme 13 On amending Paragraph 7 of Minutes No. Russian Government 1. Meeting of the Board of Directors the procurement policy DM-P9-38pr of the meeting Directives No. 6558p-P13 dated 6 December 2016 (Minutes No. 4 On ensuring Clause 5 of List of Orders Russian Government 1. Meeting of the Board of Directors as regards innovative held by the Prime Minister dated 5 September 2016 158); the adoption of KPIs of the President of the Russian Directives No. 7439p-P13 dated 19 November 2014 (Minutes building materials of the Russian Federation 2. Meeting of the Board of Directors to assess the performance Federation No. Pr-1474 dated 5 dated 5 November 2014 No. 139); dated 14 June 2016 dated 10 December 2019 (Minutes of management July 2013 2. Meeting of the Board of Directors No. 187); dated 7 August 2015 (Minutes No. 3. Information is posted on the ID 147); Portal. 3. Meeting of the Board of Directors dated 10 December 2019 (Minutes No. 187); 4. Information is posted on the ID Portal.

PAO «Sovcomflot» 149 About Strategy Operating Corporate Share capital and profit Sustainable 2019 Annual report Group results governance distribution development Annexes

No Subject Order Shareholder’s directives Results of implementation No Subject Order Shareholder’s directives Results of implementation 14 On amending Russian Government Order No. Russian Government 1. Meeting of the Board of Directors 24 On the procedure Russian Government Resolution Russian Government 1. Meeting of the Board of Directors the JSC’s procurement ISh-P13-1872 dated Directives No. 4972p-P13 dated 25 August 2016 (Minutes No. for approval by the Russian No. 1502 dated Directives No. 3538p-P13 dated 31 July 2017 policy as regards 1 April 2016 dated 11 July 2016 156); Ministry for Development 27 December 2016 dated 25 May 2017 (Minutes No. 164); competitive domestic 2. Meeting of the Board of Directors of the Far East 2. Meeting of the Board of Directors software dated 10 December 2019 (Minutes of investment programmes dated 3 October 2017 No. 187); and other infrastructure (Minutes No. 166); 3. Information is posted on the ID development plans 3. Information is posted on the ID Portal. implemented Portal. by state corporations, 15 On expanding the practice Russian Government Order No. Russian Government 1. Meeting of the Board of Directors state-owned companies of using factoring when DM-P13-1100 dated 1 March Directives No. 7704p-P13 dated 6 December 2016 (Minutes No. and other entities with state performing agreements 2016 (Clause 89 of the Russian dated 11 October 2016 158); participation for the supply of goods Government's action plan 2. Meeting of the Board of Directors (performance of work, aimed at ensuring sustainable dated 10 December 2019 (Minutes 25 On implementing Sub-clause c, Clause 1 Russian Government 1. Meeting of the Board of Directors rendering of services) socioeconomic development No. 187); partnership programmes of Russian Presidential Order Directives No. 7377p-P13 dated 30 May 2014 (Minutes No. 135); of the Russian Federation 3. Information is posted on the ID with SMEs No. Pr-2763 dated 31 December dated 7 December 2013 2. Meeting of the Board of Directors in 2016) Portal. 2017, Russian Government dated 10 December 2019 (Minutes Order No. DM-P13-77 dated No. 187); 16 On introducing lean Sub-paragraph 2.3, Russian Government Not applicable 13 January 2018 3. Information is posted on the ID manufacturing systems Section I of Minutes No. 4 Directives No. 3666p-P13 Portal. in JSCs operating within of the meeting of the Russian dated 11 June 2015 the military-industrial Government Military-Industrial 26 On the procedure Clause 3 of Russian Russian Government Not applicable complex and including Commission dated for approval by the Russian Government Resolution No. Directives No. 8860p-P13 this indicator in the JSC's 25 April 2014 Ministry for Development 1502 dated 27 December 2016 A dated 29 October 2018 KPI system. of the Far East of investment programmes 17 On transferring a part of net Russian Government Orders Directives of the Federal Not applicable and other infrastructure profit to the federal budget No. 774-r dated 29 May 2006, Agency for State Property development plans as dividends on the shares No. DM-P13-2762 dated 26 Management with regard implemented owned by the Russian April 2017 and No. 944-r dated to the JSCs included in Annex by state corporations, Federation 18 May 2017 2 to the Special List state-owned companies and other entities with state 18 On developing Clause 2 of List Russian Government 1. Meeting of the Board of Directors participation and approving regulations of Orders of the Government Directives No. 2793p-P13 dated 31 May 2016 (Minutes No. 153); to ensure rationing of the Russian Federation No. dated 19 April 2016 2. Meeting of the Board of Directors 27 On volumes of contracts Clause 2 of Russian Russian Government Not applicable of procurement DM-P9-8413 dated dated 10 December 2019 (Minutes for procurement Government Directives No. 7923p-P13 and introduction 12 December 2015. No. 187); of civilian products Order No. RD-P7-4168 dated dated 27 September 2018 of procurement norms 3. Information is posted on the ID for the fuel and energy 28 June 2017 in joint-stock companies Portal. complex concluded by military-industrial 19 On introducing professional Taking into account Russian Government 1. Meeting of the Board of Directors complex enterprises standards in the activities the provisions of Federal Law Directives No. 5119p-P13 dated 25 August 2016 of joint-stock companies No. 122-FZ "On Amendments dated 14 July 2016 (Minutes No. 156); 28 On drafting programmes Russian Presidential Decree Russian Government 1. Meeting of the Board of Directors to the Labour Code 2. Information is posted on the ID to improve procurement No. 204 dated 7 May Directives No. 1519p-P13 dated 10 April 2019 (Minutes No. 180); of the Russian Federation Portal. management quality 2018 "On National Goals dated 20 February 2019 2. Information is posted on the ID and Articles 11 and Strategic Objectives Portal. and 73 of the Federal Law for the Development "On Education in the Russian of the Russian Federation Federation" dated 2 May 2015 for the Period up to 2024", which defines the areas 20 On making settlements Sub-paragraph 1, Paragraph Russian Government 1. Meeting of the Board of Directors for development of small in roubles under new export 1, Section I of Minutes No. 7 Directives No. 4807p-P13 dated 22 September 2015 (Minutes and medium-sized businesses, contracts of the meeting of the National dated 23 July 2015 No. 148); and in pursuance of Paragraph Council for Financial Stability 2. Information is posted on the ID 4.2, Section 3 of the Federal dated 10 April 2015 Portal. Project "Acceleration of Small 21 On completing Clause 2 of Russian Presidential Letter No. RB11/9968 Information is posted on the ID Portal. and Medium-Sized Businesses". the questionnaire Order No. Pr-769 dated 26 from the Federal Agency 29 On expanding the practice Russian Presidential Decree Russian Government 1. Meeting of the Board of Directors on analysis of introduction April 2016, Clause 6 of Russian for State Property of using factoring when No. 204 dated 7 May Directives No. 4111p-P13 dated 31 October 2019 (Minutes No. of internal documents Government Order No. AD-P36- Management dated performing agreements 2018 "On National Goals dated 8 May 2019 185); 4292 dated 20 July 2016 20 March 2017 for the supply of goods and Strategic Objectives 2. Information is posted on the ID 22 On updating the JSC's Russian Presidential Decree Russian Government 1. Meeting of the Board of Directors (performance of work, for the Development Portal. long-term development No. 204 dated 7 May 2018, Directives No. 276p-P13 dated dated 11 April 2019 (Minutes No. 180); rendering of services) of the Russian Federation programme and submitting Russian Government Order No. 17 January 2019 2. Meeting of the Board of Directors for the Period up to 2024", auditor's opinions regarding DM-P13-4513 dated dated 10 December 2019 (Minutes which defines the areas LDPs 21 July 2018 No. 187); for development of small 3. Information is posted on the ID and medium-sized businesses, Portal. and in pursuance of Paragraph 4.2, Section 3 of the Federal 23 On transition by JSCs Paragraphs 4 and 6, Section II Russian Government 1. Meeting of the Board of Directors Project "Acceleration of Small to primarily domestic of Minutes No. 1 of the meeting Directives No. 10068p-P13 dated 29 January 2019 (Minutes No. and Medium-Sized Businesses". software of the Governmental dated 6 December 2018 178); Commission on the Use 2. Meeting of the Board of Directors 30 On electing chairmen Activity plan of the Federal Directives No. IP-11/21449 Not applicable of Information Technologies dated 10 December 2019 (Minutes of the boards of directors Agency for State Property of the Federal Agency dated 9 February 2018 No. 187); of the joint-stock companies Management for 2018 for State Property 3. Information is posted on the ID with state participation and the 2019 and 2020 planning Management dated 25 June Portal. not included in the Special periods relating 2019 List, which were formed to the implementation in the respective corporate of the State Programme year of the Russian Federation "Management of Federal Property".

PAO «Sovcomflot» 151 About Strategy Operating Corporate Share capital and profit Sustainable 2019 Annual report Group results governance distribution development Annexes

No Subject Order Shareholder’s directives Results of implementation No Subject Order Shareholder’s directives Results of implementation 31 On drafting JSCs' innovative Minutes No. ADP36-153pr Russian Government Not applicable 38 On assessing the existence Russian Presidential Decree Russian Government Meeting of the Board of Directors development programmes of the Russian Government Directives No. 3262p-P13 or absence of major No. 204 dated 7 May 2018, Directives No. 12119-P13 dated 7 April 2020 (Minutes No. 192) dated 1 October 2014, Russian dated 27 April 2018 investment projects being Russian Government Order dated 25 December 2019 Government Order No. implemented or scheduled No. DM-P13-4513 dated 21 DM-P36-7563 dated for implementation July 2018 (Paragraph 3.7. 7 November 2015 of the Action Plan to accelerate fixed capital investment 32 On comparison by JSCs Russian Government Order Russian Government Not applicable and increase its share of gross of the level of technological No. ISh-P13-1925 dated 5 April Directives No. 3262p-P13 domestic product to 25 percent development 2018, Paragraph 9, Section III dated 27 April 2018 approved at the meeting and current values of KPIs of Minutes No.1 of the meeting of the Government of the Russian with the development of the interdepartmental Federation on 12 July 2018 level and indicators working group (Minutes No. 20, Section I) of leading similar on the implementation companies in accordance of innovative development 39 On preventing corruption Russian Presidential Order No. Directives No. OD-11/12116 Not applicable with Methodological priorities at the Presidium risks Pr-113 dated 17 January 2012, of the Federal Agency Recommendations of the Russian Presidential Russian Government Orders for State Property Council for Economy No. VP-P13-459 dated 27 Management dated Modernization and Innovative January 2012 and No. ISh-P13- 22 March 2013 Development dated 14 April 7501 dated 7 December 2012 2014 and Letter No. 32225-OF/ D01i from the Russian Ministry 40 On supplementing Paragraph 2 of Minutes No. Russian Government Not applicable of Economic Development the procurement DK-P13-100pr of the meeting Directives No. 6574p-P13 dated 13 November 2017 regulations to establish held by Deputy Chairman dated 18 July 2019 priority of procurement of the Government 33 On taking an inventory Russian Government Order No. Russian Government 1. Meeting of the Board of Directors of products using aluminium of the Russian Federation D.N. of intellectual property ISh-P13-1925 dated Directives No. 7050p-P13 dated 9 October 2018 and/or semi-finished Kozak dated 29 May 2019 rights with a viewtothen 5 April 2018 dated 30 August 2018 (Minutes No. 176); aluminium from Russian organise measures 2. Information is posted on the ID enterprises to ensure that the identified Portal. property items the rights 41 On participation Sub-clause d, Clause 1 of List No directives have been Not applicable to which belong tothe in the preparation of Orders of the President issued JSC are afforded legal of regulatory documents of the Russian Federation No. protection and these for holding professional Pr-1921 dated rights are recognised excellence championships 21 September 2015 on the balance sheet based on Worldskills as intangible assets standards for subsequent introduction into economic circulation and valuation of the rights thereto. 34 On updating KPIs Russian Government Order Russian Government 1. Meeting of the Board of Directors No. 1388-r dated 27 June 2019 Directives No. 9054p-p13 dated 31 October 2019 (Minutes No. dated 2 October 2019 185); 2. Meeting of the Board of Directors dated 10 December 2019 (Minutes No. 187); 3. Information is posted on the ID Portal. 35 On procurement of Russian Clause 6 of Order No. Russian Government 1. Meeting of the Board of Directors products used in national DK-P9-81pr of Deputy Directives No. 9984p-P13 dated 10 December 2019 (Minutes projects and an integrated Chairman of the Government dated 1 November 2019 No. 187); plan to modernise of the Russian Federation D.N. 2. Information is posted on the ID and expand backbone Kozak dated 13 May 2019 Portal. infrastructure 36 On the possibility Clause 4 of Russian Russian Government Meeting of the Board of Directors of transition by JSCs to tax Government Order No. Directives No. 11528p-P13 dated 7 April 2020 (Minutes No. 192) control in the form of tax DM-P13-8pr dated dated 13 December 2019 monitoring 13 February 2019 37 On increasing labour Paragraph 1, Section Russian Government Meeting of the Board of Directors productivity I of Minutes No. SA-P13- Directives No. 12153-P13 dated 7 April 2020 (Minutes No. 192) 25pr of the extended dated 25 December 2019 meeting on monitoring the implementation of national projects "Labour Productivity and Employment Support", "Small and Medium-Sized Entrepreneurship and Support of Individual Entrepreneurial Initiative" and "International Cooperation and Export" dated 5 March 2019

PAO «Sovcomflot» 153 About Strategy Operating Corporate Share capital and profit Sustainable 2019 Annual report Group results governance distribution development Annexes

7. LIST OF KEY INTERNAL REGULATIONS SERVING AS THE BASIS 8. NON-CORE ASSET SALE PROGRAMME FOR THE COMPILATION OF THIS ANNUAL REPORT In accordance with the decision of the PAO Sovcomflot Board of Directors 1. The PAO Sovcomflot Charter; dated 31 January 2018 (Minutes No. 169 dated 5 February 2018) and based 2. Regulations on the General Meeting of Shareholders of PAO on the results of the analysis for compliance with the methodological Sovcomflot; guide-lines for identifying and disposing of non-core assets approved 3. Regulations on the PAO Sovcomflot Board of Directors; by Russian Government Order No. 894-r dated 10 May 2017, a new version 4. Regulations on the PAO Sovcomflot Executive Board; of the PAO Sovcomflot Non-Core Asset Disposal Programme was approved 5. Regulations on the Chief Executive Officer of PAO Sovcomflot; and the register of PAO Sovcomflot non-core assets, which also included 6. Regulations on the PAO Sovcomflot Auditing Commission; the non-core assets of its subsidiary PAO Novoship, was updated. 7. Regulations on the Payment of Compensation and the Reimbursement of Expenses to PAO Sovcomflot Board of Directors Members; The PAO Sovcomflot Non-Core Asset Disposal Programme defines the main 8. Regulations on the Payment of Compensation and the Reimbursement approaches, principles and procedures for identifying and disposing of non- of Expenses to PAO Sovcomflot Auditing Commission Members; core assets belonging to the Company. 9. Regulations on the Dividend Policy of PAO Sovcomflot; 10. The Long-Term Development Programme of Sovcomflot Group; The main objectives of the PAO Sovcomflot Non-Core Asset Disposal 11. The PAO Sovcomflot Development Strategy; Programme are to 12. The PAO Sovcomflot Corporate Governance Code; 13. Regulations on the Audit Committee of the PAO Sovcomflot Board • promote more efficient use of assets and maximise income (minimise of Directors; losses) on the sale of the Company’s property; 14. Regulations on the Committee for Innovative Development • reduce financial costs associated with the maintenance and servicing and Technical Policy of PAO Sovcomflot; of non-core assets; 15. Regulations on the HR and Compensation Committee of the PAO • form additional sources of financing; Sovcomflot Board of Directors; • improve the competitiveness and investment attractiveness 16. Regulations on the Strategy Committee of the PAO Sovcomflot Board of the Company; of Directors; • increase capitalisation. 17. The Information Policy of PAO Sovcomflot; 18. Regulations on the Internal Audit Department of PAO Sovcomflot; One core asset, shares of JSC St. Petersburg International Commodity 19. Regulations on the Corporate Secretary of PAO Sovcomflot; Exchange, was sold during the reporting period. The actual sale value 20. Regulations on the Procedure for Procuring Goods, Works and Services of the asset exceeded its book value by RUB 549,280. The difference for the Needs of PAO Sovcomflot; between the actual value of the asset and its book value is due to the fact 21. Regulations on the Professional Training/Retraining and Raising that the sale was made through a public auction on the Sber-bank - AST the Qualifications Level of PAO Sovcomflot Personnel; Electronic Trading Platform at market value 22. Regulations on Wages and Material Incentives for PAO Sovcomflot Employees; Information on the sale of non-core assets of PAO Sovcomflot in 2019 23. The Long-Term Motivation Programme for PAO Sovcomflot Employees; 24. The Programme on the Sale of PAO Sovcomflot Non-Core Assets; No. Asset Means for identifying Activity using the asset Book value, RUB Actual sale value, RUB 25. The PAO Sovcomflot Energy Conservation and Energy Efficiency the asset Programme; 1. 2% interest in JSC St. Registration number: Organisation of exchange 8,700,000 60,249,280 26. The PAO Sovcomflot Project Management Regulation; Petersburg International 1-02-80100-N trades 27. The Standard for Auditing the Implementation of the PAO Sovcomflot Commodity Exchange Long-Term Development Programme; 28. The Technical Policy of PAO Sovcomflot; 29. Regulations on the PAO Sovcomflot Risk Management System; 30. Regulations on the Finance Department - Treasury of PAO Sovcomflot; In accordance with the decision of the PAO Sovcomflot Board of Directors 31. Regulations on Sponsorship and Charity of PAO Sovcomflot. dated 10 December 2019 (Minutes No. 187 dated 13 December 2019), the assets owned PAO Novoship were removed from the register pursuant to the methodological guidelines for identifying and disposing of non-core assets. The sale of these assets will be controlled through the management and supervisory bodies of PAO Novoship.

Given the disposal of shares of JSC St. Petersburg Commodity Exchange, the register of the Company’s non-core assets as of 31 December 2019 contained one non-core asset owned by to PAO Sovcomflot by the right of owner-ship.

No. Asset Means Activity using the asset Book value, RUB Planned method for identifying of disposal the asset 1. 0.3% interest in Joint-stock State registration Banking 5,116,000 Sale, public electronic commercial bank "National number: 01021170B auction Reserve Bank"

PAO «Sovcomflot» 155 About Strategy Operating Corporate Share capital and profit Sustainable 2019 Annual report Group results governance distribution development Annexes

9. GENERAL INFORMATION ABOUT PAO SOVCOMFLOT Full name of the Company PAO Sovcomflot

Full name of the Company PAO Sovcomflot Information on the inclusion OAO Sovcomflot was included in the list of strategic joint-stock companies by Decree No. in the list of strategic enterprises and joint- 1009 of the President of the Russian Federation dated 4 August 2004 «On approval of the list stock companies of strategic enterprises and strategic joint-stock companies»

Number and date of issue of the certificate Registered by the Moscow Registration Chamber on 18 December 1995 (certificate series BB No. of state registration as a legal entity 039.329 dated 18 December 1995). Information on state registration was entered in the Unified State Register of Legal Entities on 31 July 2002, primary state registration number (PSRN) Full name and address of the registrar Joint-Stock Company «Independent Registrar Company R.O.S.T.» 18 Stromynka St., bldg. 13, 1027739028712 (certificate series 77 No. 007866796 on the entry of a record in the Unified Moscow 107996, Russia State Register of Legal Entities on a legal entity registered before 1 July 2002).

Full name and address of the Company’s auditor Ernst & Young Limited Liability Company 77 Sadovnicheskaya Embankment, bldg. 1, Moscow 115035, Russia

Servicing bank VTB Bank (PAO), Saint Petersburg Place of registration 3A Moyka River Embankment, St. Petersburg, 191186 Legal advisors INCE & Co International LLP, U.K. Reed Smith LLP, U.K. Address of the standalone division in Moscow 6 Gasheka Street, Moscow, 125047 Holman, Fenwick & Willian, U.K. Watson, Farley & Williams LLP, U.K. Reynolds Porter Chamberlain LLP, U.K. Jurinflot Law Firm, Russia Contact telephone (495) 660 40 00 Pepelyaev Group LLC, Russia Shchekin & Partners LLC, Russia Fax (495) 660 40 99 Main lines of business • Consultancy services, including: – Planning and organising the transport of cargo and passengers E-mail address [email protected] – Advising on the current status and development outlook of different segments of the shipping market – Developing promising projects in the shipping sector Website http://www. scf-group. ru/ – Advising on vessel purchase and sale transactions – Marketing, studying the state of the market and working with cargo owners – Advising on insurance issues and arranging insurance coverage Shareholder Russian Federation represented by the Federal Agency for State Property Management – Participation in negotiations to achieve operational goals and preparing corresponding draft documents and agreements; preparing draft corpo-rate and contractual documents – Reviewing draft documentation regarding different types of contracts, transactions, Amount of authorised capital RUB 1,966,697,210 (one billion, nine hundred sixty-six million, six hundred ninety-seven including vessel purchase and sale financing, ordering from shipyards, refinancing, etc. thousand, two hundred and ten roubles). – Conducting legal analysis of issues in dispute – Organising audit Total number of shares 1,966,697,210 (one billion, nine hundred sixty-six million, six hundred ninety-seven thousand, – Managing payments and advising on financial issues two hundred and ten) – Representing the client at conferences and seminars dedicated to the shipping industry Number of ordinary shares 1,966,697,210 (one billion, nine hundred sixty-six million, six hundred ninety-seven thousand, and transport systems two hundred and ten) – Other business development activities • Participation in other organisations. Nominal value of ordinary shares The nominal value of ordinary shares is 1 (one) rouble per share. Code of the Issuer's principal economic activity 70.22 according to OKVED (Russian Classification State registration number of the issue 1-01-10613-А; date of assignment of state registration number to the issue of securities: of Economic Activities) of ordinary shares and date of state registration 27 November 2007; date of state registration of the issue: 22 August 1996 Company headcount 103 people 1 Number of shares in the additional issue whose 280,956,743 (two hundred eighty million nine hundred fifty-six thousand seven hundred state registration has taken place forty-three)

State registration number of the additional 1-01-10613-А; 22 November 2008 Operating period of the Company 31 years issue of ordinary shares and date of state in the respective sector registration Number of shares owned by the Russian 1,966,697,210 (one billion, nine hundred sixty-six million, six hundred ninety-seven thousand, Federation two hundred and ten)

Share of the Russian Federation The Russian Federation owns 100% of the ordinary shares of PAO Sovcomflot. PAO Sovcomflot in the authorised capital (ordinary shares did not issue preferred shares. and preferred shares)

Existence of the special right of the Russian The Russian Federation does not have the special right to participate in the management of PAO 1. Federation to participate in the company’s Sovcomflot (the “Golden Share”). As at the date of preliminary approval of the Annual Report by the Company’s Board of Directors. management (the “Golden Share”).

PAO «Sovcomflot» 157 About Strategy Operating Corporate Share capital and profit Sustainable 2019 Annual report Group results governance distribution development Annexes

10. GLOSSARY

Abbreviations Definitions

EBITDA Earnings before Interest, Taxes, Depreciation and Amortization - an analytical indicator equal to the amount Group Sovcomflot Group of earnings before interest, taxes, depreciation, amortisation and impairment Deadweight The total weight of payload carried by the vessel, measured in tonnes Adjusted EBITDA EBITDA adjusted for other non-operating income and expenses; gain/loss on derivative financial instruments held for trading; gain/loss on ineffective portion of hedges; gain/loss on sale of subsidiaries; foreign exchange MARPOL 73/78 Convention International Convention for the Prevention of Pollution from Ships gain/loss; gain/loss on sale of equity investments; other operating income and expenses; gain on derecognition Non-core assets а) The non-current assets of the Company that form part of immovable fixed assets, intangible assets of dividend liability and construction in progress, which do not contribute to the core and related business and are included LTIF Lost Time Injury Frequency in the register of non-core assets; b) shares convertible into equity securities, and participatory interests in the authorised (joint-stock) capitals of legal entities whose business/activities are not related to running TRCF Total Recordable Cases Frequency the core and related business, which are included in the register of non-core assets. SCF Sovcomflot PAO Sovcomflot Public Joint-Stock Company Sovcomflot, parent company of Sovcomflot Group SCF Sovcomflot Time charter equivalent The regular average daily revenue of a vessel operating on a voyage charter that the ship owner should earn on any shipment destination ANO Autonomous non-profit organisation Chartering of a vessel The agreement to hire a vessel for a specific shipment (voyage) or the hiring of a vessel for a specific time period NF Naval forces, naval fleet Shuttle tanker A crude oil tanker that makes regular trips between a producing field and an onshore terminal or oil refinery DWT Deadweight International ISO standards A set of business and technology assessment criteria, which is currently used by global market players LDP Long-term development programme as a standardisation framework. They are intended to help organisations meet customer and other stakeholder requirements and expectations FESRC Far Eastern Shipbuilding and Ship Repair Centre Backwardation A situation where the futures price is below the spot price of the underlying asset KPI Key performance indicators Contango A situation where the futures price is above the spot price of the underlying asset ISMS Integrated safety management system ClarkSea Index An index provided by Clarksons Research; represents a weighted average index of earnings for the main vessel LIBOR London Interbank Offered Rate types where the weighting is based on the number of vessels in each fleet sector MARPOL International Convention for the Prevention of Pollution from Ships ISM Code International Safety Management Code IFRS International financial reporting standards VAT Value added tax R&D Research and development NCAs Non-core assets PAO Public Joint-Stock Company LTIP Long-term incentive programme SUR Seafarers’ Union of Russia RAS Russian accounting standards RSPP Russian Union of Industrialists and Entrepreneurs LNG Liquefied natural gas LPG Liquefied petroleum gas SMS Safety management system Bank of Russia Central Bank of Russia

PAO «Sovcomflot» 159 2019 Annual report

FOR NOTES

PAO «Sovcomflot» PAO SOVCOMFLOT

3A Moyka River Embankment St. Petersburg 191186 Russian Federation

Moscow Office:

6 Gasheka Street Moscow 125047 Russian Federation Tel.: +7 (495) 660 4000 email: [email protected] www.scf-group.ru sovcomflotgroup